Nominal revenues from ticket sales

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You are assessing the viability of operating an amusement park. The nominal revenues from ticket sales at the end of Year 1 will be $493649. They will increase by 4% per year in real terms. The only annual cost will be to lease the whole operation for $181856 per year. The leasing costs are nominal and will start at the end of Year 1. They will stay fixed in nominal terms. 

Assume the inflation rate is 5% and the real discount rate is 10%. All cash flows occur at year-end. The company will not pay any taxes. The business will continue into perpetuity. 

What is the NPV of the project?

a. $7701740

b. $5675563

c. $7026512

d. $7650709

e. $6662434

Reference no: EM131914578

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