Solution Case Study

Table 1 Project Bus Schedule and Passengers

Departure (Monday – Thursday) Man On Shan -> HKUST HKUST -> Ma On Shan
7:20am 125 0
Noon 50 30
4:45pm 25 115
9:30pm 0 55

Departure (Friday) Ma On Shan -> HKUST HKUST -> Ma On Shan

7:20am 50 0
Noon 15 10
4:45am 0 55
9:30pm No service No service
Table 2 Busses Needed (32 passengers)
Departure Peak demand (one way) Buses needed
7:20am 125 4
Noon 50 2
4:45pm 115 4
9:30pm 55 2
• There are many assumptions that can be made in arriving at a minimum
fare. The solution shown here assumes the busses are stationed at Ma On
Shan, then dispatched from Ma On Shan to HKUST, then back to Ma On
Shan at 7:20am, noon, 4:45pm, and 9:30pm, totaling four round trips
Monday through Thursday, and three round trips (7:20am, noon, 4:45pm)
on Friday. I assume no parking fees and also assume that the bus will be
only operated for this line while we share the drivers with other MARTS
routes.
• The average one-way fare to charge to earn a 25% rate of return is $7.43.
The solution uses Microsoft excel, with columns for the costs and revenue.
• Net present value: $2,456
• Payback: 4th year
Table 3 Bus Fares per Week
Fares daily Days Total
Monday – Thursday
7:20am 125 4 500
Noon 80 4 320
4:45pm 140 4 560
9:30pm 55 4 400
Friday
7:20am 50 1 50
Noon 25 1 25
4:45pm 55 1 25
9:30pm 0 1 0
Estimated fares per week 1,730
 Tables 4 Bus Miles Driven per Week
Buses needed Miles (round trip) Days Miles
per trip

Monday – Thursday
7:20am 4 50 4 800
Noon 2 50 4 400
4:45pm 4 50 4 800
9:30pm 2 50 4 400
Friday
7:20am 2 50 1 100
Noon 1 50 1 50
4:45pm 2 50 1 100
9:30pm 0 50 1 0
Total miles per year 2,650 * 45 119,250
 Tables 5 Capital Budgeting Analysis
Cost of bus Price of one Total fare Fuel Cost (3) Maintenance Dispatch Driver salary Net cash
(1) way fare revenue (2) cost (4) emergency (6) flow
bus (5)
Day 1 1,340,000 (1,340,000)
Year
1 $7,43 $572,976 $68,412 $23,200 $5,500 $87,075 $394,239
2 $7,43 $572,976 $72,517 $24,360 $5,775 $89,687 $386,087
3 $7,43 $572,976 $76,868 $25,578 $6,064 $92,378 $377,538
4 $7,43 $572,976 $81,480 $26,857 $6,367 $95,149 $368,573
5 $7,43 $572,976 $86,368 $28,200 $6,685 $98,004 $359,168
6 $7,43 $572,976 $91,550 $29,610 $7,020 $100,944 $349,302
7 $7,43 $572,976 $97,044 $31,090 $7,371 $103,972 $338,949
8 $7,43 $572,976 $102,866 $32,645 $7,739 $107,091 $328,084
9 $7,43 $572,976 $109,038 $34,277 $8,126 $110,304 $316,680
10 $7,43 $572,976 $115,580 $35,991 $8,532 $113,613 $304,709
11 $7,43 $572,976 $122,515 $37,790 $8,959 $117,022 $292,140
 Details
• (1) 335,000 * 4 = 1,340,000
• (2) 1,730 fares * 45 weeks * 7.43 = 572,976
• (3) 119,250 miles / 3.8mpg = 31,382 gallons * 2.18 = 68,412
• -> with a 6% growth rate per year
• (4) $5,800 per bus * 4 buses = 23,200
• -> with 5% growth rate per year
• (5) breakdowns $500 per dispatch * 4 dispatches = 2,000; overcapacity $350 per dispatch * 10 dispatches
= 3,500, so 5,500 in total, with a 5% growth rate per year
• (6) 36,500 salary + 21,500 benefits * 1 ½ drivers, with a 3% growth rate per year

• Note: to perform this analysis in excel, the net present value and internal rate of return functions are
performed on the Net cash inflow/(outflow) column. Total fare revenue is the amount entered into the
“Price of one-way fare” column x 1,730 fares x 45 weeks. Enter dollar amounts into the “Price of one-way
fare” column until IRR is 25% and NPV is just above zero.