Question

You are the financial analyst of the Management and Budgeting Oftice (MBO) for the Procurement Agency of your Municipality The Transport system of your city needs to have an extension/renovation of the existing equipment (eg vehicles, on-board Wi-Fi network, etc.) and infrastructure (e.g. binary for bus, etc). The transport system is totally owned by the municipality, hence it is in charge of investment decision and business activity for this service Today, the goals for your municipality are several, as to increase the number of passengers for public transport in your city, to decrease the number of people using cars by providing a better transport services, to decrease the environmental pollution, to build a more efficient transport system in terms of saving of costs On the other side, your municipality has a budget constraint due to the lack of financial resources For this reason, the municipality has to decide among different kind of investments, ad has to consider some uncertain future variables (e.g., as the expected demand of passengers, expected prices, costs of infrastructures, interest rate, expected revenues from passengers services, etc.) Your MBO oflice analysed two possible ways for investing in a new transport system: Renovate the old infrastructure (Use Case 1 = UCI, where the infrastructure will be not totally substituted but only renewed with some new equipment in order to become more efficient, since the current equipment is becoming obsolete and needs to be changed: Substitute all the old infrastructure (Use Case 2-UC2) where the infrastructure and the equipment will be totally substituted with new one. The new infrastructure will be more environmental friendly and more efficient, and twll include new services for passengers related to wireless connection and smart mobility, hence, more attractive for people. * Since you are the consultant for the municipality, for each of the two solutions you have considered several variables to be analysed in order to provide to the municipality your financial evaluation: Initial costs of the investment i CapEx) that represents the initial outflow for the investment coming from the purchasing of material, equipment, work force and building or renovating the infrastructure Operating cost of maintenance of infrastructure and equipment (OpEx) that represents the yearly cost for maintaining the infrastructure Interest rate, that l be chosen with an average value of the expected future interest rates Residual value (salvage value) at the end of life of your infrastructure The 'expected' dem棟nd of passengers in the next 15 years 〔the demand of passengers is expected to increase in the future if the infrastructure wl be improved). The increasing of demand will be different according to the difference of use cases (UCI or UC2) Prices for passengers: this value is chosen by considering the demand and supply market clearing. *

please help me answer these questions, I provided all the information. thank you

Answer 1

Since you have asked multiple questions and each question has sub parts as well, I will address all the sub parts of the first question only.

Question 1

You may roundoff all your answers depending upon your requirement.

Part (a)

For UC1:

Demand Curve is given by: Q_D = 8,300 - 0.5P

Supply curve is given by: Q_S = 6,000 + 4P

At equilibrium, Q_S = Q_D = Q (let's say)

Hence; we get Q_D = 8,300 - 0.5P = Q_S = 6,000 + 4P

Hence, Equilibrium Price for UC1 = P = (8,300 - 6,000) / (4 + 0.5) = 511.11 = P_UC1

Equilibrium Demand for UC1 = Q = 6,000 + 4P = 8,044.44 = Q_UC1

For UC2:

Demand Curve is given by: Q_D = 8,700 - 0.5P

Supply curve is given by: Q_S = 6,000 + 4P

At equilibrium, Q_S = Q_D = Q (let's say)

Hence; we get Q_D = 8,700 - 0.5P = Q_S = 6,000 + 4P

Hence, Equilibrium Price for UC2 = P = (8,700 - 6,000) / (4 + 0.5) = 600 = P_UC2

Equilibrium Demand for UC2 = Q = 6,000 + 4P = 8,400 = Q_UC2

Part (b)

Under UC1: Annual total revenue = P_UC1 x Q_UC1 = 511.11 x 8,044.44 = $ 4,111,604.94

Under UC2: Annual total revenue = P_UC2 x Q_UC2 = 600 x 8,400 = $ 5,040,000