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Calculate the minimum ticket price

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Question - The Snow City ski park is considering the purchase of a new toboggan track ride. The cost to purchase the equipment is $4,000,000 and it will cost an additional $3,500,000 to have it installed. The equipment has an expected useful life of six years and will be depreciated using a MACRS 7-year class life. Management expects to run about 175 rides per day, with each ride averaging 20 riders. The season will last for 150 days per year. In the first year, the ticket price per rider is expected to be $4.75, and it will increase by 5% per year. The variable cost per rider will be $1.50 and the total fixed costs will be $325,000 per year. After six years the ride will be dismantled at a cost of $225,000, and the parts will be sold for $350,000. The cost of capital is 7.5%, and Snow City's marginal tax rate is 30%. Complete the following tasks:

-Find the NPV, IRR and MIRR for MACRS classes of 3,5,7,10,15 and 20 years. What do you conclude about the speed of depreciation and the profitability of an investment?

-Use Goal Seek in Excel to calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.

Reference no: EM132978237

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