**A city must decide whether to build a downtown parking garage with a capacity of 750 cars. They also must decide what rate to charge for parking. It is considering two rates: a flat $1.50 per hour rate or an all-day rate of $1 per hour (based on a $10 daily rate and an average 10-hour stay). Parking demand is estimated at Q = 900 – 300P, where Q is the number of cars in the garage each hour and P is the hourly rate. The capital cost of the garage is estimated to be $20 million and the annual operating expense is estimated at $0.62 million over its estimated 40 year life. The city’s discount rate is 8%. At 8%, $1 per year for 40 years has a present value of $11.90. (Use the factor of 11.9 to multiply yearly net benefits to obtain a present value.) For this analysis, use 260 working days per year. **

**a. ** **Should the city build the facility? If so, which of the two hourly rates should it charge? **

**b. ** **Could a private developer profitably build and operate the garage? Which of the two rates should it set, assuming a private firm would face the same demand, costs, and discount rate as the city?**

Subject | Business |

Due By (Pacific Time) | 05/28/2014 12:00 am |

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