Case Study Undergraduate 510 words

NYC Taxi Medallion Auction: ROI Analysis of Bid Scenarios

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Abstract

This report evaluates whether purchasing a New York City taxi medallion is financially advisable by computing the return on investment (ROI) across three bid scenarios drawn from a 2004 auction reported by Michael Luo in the New York Times. The analysis assumes the buyer finances $200,000 through a 15-year mortgage at 6% interest and contributes the remainder as a down payment. Using annual gains derived from lease savings and taxi driver income, the report calculates ROI for the lowest ($283,299.99), midpoint ($292,580.86), and highest ($311,111.11) winning bids. All three scenarios yield positive ROI values, supporting the recommendation to purchase the medallion.

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What makes this paper effective

The paper applies a consistent analytical framework — the ROI formula — across three clearly delineated scenarios, making comparison straightforward and transparent.
Assumptions (loan amount, interest rate, repayment period, income figures) are stated explicitly before calculations begin, which strengthens methodological clarity.
Each scenario follows an identical structure — gain, total cost, annual cost, ROI — giving the report a professional, reproducible quality.

Key academic technique demonstrated

The paper demonstrates quantitative scenario analysis: by holding all variables constant except the bid price, the author isolates the effect of purchase price on investment return. This technique is standard in financial and business writing and allows a reader to immediately identify the most favorable outcome (lowest bid, highest ROI) without additional interpretation.

Structure breakdown

The report opens with regulatory context for NYC taxi medallions, then states the three bid values sourced from the 2004 auction. A shared assumption set (loan size, interest rate, income figures) is established before the three parallel ROI scenarios are presented. A brief concluding paragraph synthesizes findings and issues a clear recommendation. Footnotes clarify data sources and methodological choices such as the decision not to adjust for inflation.

Introduction: NYC Taxi Medallion Legislation and Auction Background

The ability to drive one's own taxi in New York City has gradually been restricted since legislation on taxi medallions was enforced at the end of World War II. Medallions are sold at public auctions, and their prices have increased from one auction to the next. This report draws on data from Michael Luo's article Bids Exceed $300,000 in Medallion Auction (New York Times, April 24, 2004) to evaluate the financial viability of purchasing a medallion.

Based on the information retrieved from Luo's article, the following bid values are used in the computations:

The lowest winning bid is $283,299.99, in accordance with the results of the 2004 auction. The midpoint winning bid is $292,580.86, based on the results of the same auction. The highest winning bid is $311,111.11, also from the same auction.

Bid Values and Investment Assumptions

The decision of whether to purchase a medallion must be based on the computation of the return on investment (ROI), a financial ratio used to assess the potential performance of an investment. ROI is calculated by subtracting the cost of the investment from the gains generated by the investment, and then dividing the result by the cost of the investment (Investopedia, 2009).

It is assumed that regardless of which bid applies — high, midpoint, or low — the buyer does not possess the full purchase amount and will need to obtain $200,000 through a bank loan, to be repaid over 15 years at a fixed interest rate of 6%, secured by a mortgage on his house. All values are preserved from the 2004 auction and are not adjusted for inflation; they are assumed to retain their 2004 values given the recent decrease in prices in the context of the economic crisis.

Gain from Investment:

Monthly lease savings: $90 (i.e., $780 − $690) × 12 months = $1,080, plus annual taxi driver income of $30,000 = $31,080

Total Cost of Investment: $283,299.99, of which $83,299.99 is the buyer's own capital and $200,000 comes from the bank loan.

Scenario 1: ROI at the Lowest Bid

Annual Cost of Investment:
($83,299.99 ÷ 15) + ($200,000 × 1.06 ÷ 15) = $5,553.33 + $14,133.33 = $19,686.66

ROI = ($31,080 − $19,686.66) ÷ $19,686.66 = 0.5787

Gain from Investment: $90 × 12 + $30,000 = $31,080

Total Cost of Investment: $292,580.86, of which $92,580.86 is the buyer's own capital and $200,000 comes from the bank loan.

2 Locked Sections · 150 words remaining

Scenario 2: ROI at the Midpoint Bid · 75 words

"ROI calculated for midpoint bid of $292,580.86"

Scenario 3: ROI at the Highest Bid · 75 words

"ROI calculated for highest bid of $311,111.11"

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Conclusion and Investment Recommendation

All three scenarios reveal positive values of the return on investment, which means that the purchase of a medallion will generate positive cash flows. In other words, it is advisable to make the investment and purchase the medallion. Out of the three scenarios, the most desirable is the first, where the bid price is the lowest and the ROI is the highest at 0.5787.

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Key Concepts in This Paper

Taxi Medallion Return on Investment Bid Scenarios Mortgage Financing Annual Cost Lease Savings NYC Auction Investment Gain Financial Analysis Scenario Comparison