Considering the purchase of new log flume ride

Assignment Help Financial Management
Reference no: EM131060564

The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is 3,500,000 and it will cost an additional 250,000 to have it installed. The equipment has an expected life of 6 years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 25 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $4.00, and it will be increased by 4% per year. The variable cost per rider will be $1.40, and total fixed costs will be $320,000 per year. After six years, the ride will be dismantled at a cost of $115,000 and the parts will be sold for $450,000. The cost of capital is 12%, and its marginal tax rate is 35%. a) Calculate the initial outlay, annual after-tax cash flow for each year and the terminal cash flow. b) Calculate the NPV, IRR, and MIRR of the new equipment. Is the project acceptable? c) Using the Goal Seek tool, calculate the minimum ticket price that must be charged in the first year in order to make the project acceptable.

Reference no: EM131060564

Questions Cloud

What is its yield to maturity and current yield : You have just purchased a 14% coupon bond for 1277.37. It has a maturity of 6 years and par value of 1000. What is its current yield. What is its yield to maturity. What is the expected price one year from now if interest rates stay the same.
Main cost of the operation of commercial banks : Which of the following is the main cost of the operation of commercial banks?
Target audience for del taco : Match the demographic profile of your target audience for Del Taco with the types of television programs that they are most likely to watch on a regular basis.
What is an immutable class : What is an Immutable Class ?
Considering the purchase of new log flume ride : The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is 3,500,000 and it will cost an additional 250,000 to have it installed. Using the Goal Seek tool, calculate the minimum ticket price t..
Problem regarding the major labor laws : Using APA style format, write a paper of 4-5 pages describing the provisions of the following major labor laws as well as their impact on organizations and the union-management relationship:
What would happen to the expected maturity of the class : If a CMO has 3 tranches, A, B, and Z (an accrual tranche), as well as a residual class, answer the following question? If the prepayment on a pool of mortgages decreases from CPR 10% to CPR 5%, what would happen to the expected maturity of the A clas..
What is the objective of tcp congestion control : For congestion control, TCP uses methods like AIMD (Additive increase, multiplicative decrease), slow start and congestion avoidance.
Present value of the bankruptcy cost for the unlevered firm : The unlevered firm expects to earn $250,000 in net operating income each year for the foreseeable future. It has a tax rate of 40% and has a capitalization rate of 8% equal to the industry required return for this type of firm. What is the present va..

Reviews

Write a Review

Financial Management Questions & Answers

  Recommend the company do if the annual discount rate

Your company is considering whether to in source or to purchase a part for your product. In order to produce the part yourself, you will need to purchase the raw materials for a cost of $800 per part. It takes 6 months to create 90 parts. What would ..

  Using Chriss analysis-looking at demand for light aircraft

Mark Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chris’s analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipmen..

  What are divas projected profits for the fiscal year ending

what are divas projected profits for the fiscal year ending september 1995?what factors affect a firms exposure to

  Instruction using the future value of annuity formula

Please show me step-by-step instruction using the Future Value of Annuity formula to solve the following: My grandchild will be attending Rutgers University Medical School in New Jersey; four-year college, in year 2036. The college tuition and fees f..

  Calculate the NPV of the project

Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $288,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..

  Additional contribution is made to the fund

You started an education fund for your child. You are expecting him/her to attend college 18 years from now. According to statistics, the expected amount you will need 18 years later should be $300,000. If the fund provides a rate of return of 10% pe..

  What annual rate of return did he learn on investment

A young boy invested $50 to plant Christmas trees on his grandfather’s farm. When the boy was a freshman in college, six years later, he harvested the trees and sold them for $400. What annual rate of return (i.e. interest rate) did he learn on the i..

  Evaluate several proposed capital projects

The Morris Company is attempting to determine its cost of capital in order to evaluate several proposed capital projects and set its capital budget for next year. The following information has been made available: Target capital structure is 40% debt..

  Explain the term structure of interest rates

Which of the following is not considered to be a basic theory used to explain the term structure of interest rates?

  Calculate the modified internal rate of return for project

Cost of project= $5,676.10 WACC= 11% Year 1 cash inflow $1000 year 2 cash inflow $1500 year 3 cash inflow $2000 year 4 cash inflow $3000 year 5 cash inflow $1600 Calculate the modified internal rate of return for this project.

  What portion of total assets is financed with dept

Fido's Dog Spa's financial statements show that its total assets equal $100,000, its return on assets is 3% and its return on equity is 5%. Compute the company's net income. What portion of total assets is financed with dept?

  Calculate the tax on the sale of each asset

Capital gains taxes Perkins Manufacturing is considering the sale of two nondepreciable assets, X and Y. Asset X was purchased for $2,000 and will be sold today for $2,250. Asset Y was purchased for $30,000 and will be sold today for $35,000. The fir..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd