MARTA is considering purchasing a fleet of 20 solar powered mini buses. The anticipated purchase price of the fleet is $1,500,000 or $75,000 per bus. Each mini bus is expected to have a useful life of four years when it can be sold for $5000. The annual operating cost for each mini bus is projected to be $15,000. In addition, each mini bus must be refurbished once during its useful life. The refurbishment will cost $8,000? and will occur at the end of two years. MARTA uses a discount rate of 8% in its capital investment evaluations.
1. Assuming that fare revenue is the only source of cash flows to support the purchase and use of MARTA's 20 solar mini buses, how much fare revenue must each mini bus generate annually for this purchase to be economically viable?
2. This fare revenue requirement is economically and strategically reasonable. True, False, Uncertain? Explain and justify your conclusion on whether the fare revenue is economically and strategically reasonable using external sources of information regarding bus transit service in the United States.