Why theater operator should invest in new 4d auditorium

Assignment Help Financial Management

Reference no: EM131597181

Please explain why a theater operator should invest in a new 4D auditorium.

You should explain your answer in NPV, Payback Period, IRR, ARR, ROI, CAGR. Other than precise, step-by-step calculation, you should explain the answers by your own words and explain in details the outcomes of this investment project.

CAPEX (for 100 4D Seat Auditorium) : Total 1 Million USD

Seat Number Reduction : 35% (Seat loss rate when converting a 3D Auditorium to a 4DX Auditorium)

4D Equipment : $650K in total

Auditorium Renovation Construction Cost (Converting an 3D Auditorium to a 4D Auditorium): $350K

Annual Incremental Net Cash flow for Cinema (based on 100 4D Seat Auditorium)

Occupancy Rate (“OR” : Seats Sold / Seats Available)

4D OR : 50%

Existing 3D Auditorium OR (Before Conversion) : 15%

Show per day : 5 Shows per day (for each 3D and 4D)

By definition, “Annual Incremental Net Cash flow for Cinema” excludes Existing Cash Flow from the existing 3D Auditorium (before Conversion)

Per Ticket Incremental Revenue on 4D for Cinema (Cinema Incremental Cash Flow) : $7.48 / sold ticket

OPEX per year for Cinema in order to operate the 4D Auditorium : $39,000 / year.

Others

WACC (Discount Rate) : 9%

CAPEX for establishing a 3D Auditorium: Approximately 1 Million for a 154 Seat 3D Auditorium

OPEX for operating a 3D Auditorium: Approximately USD $ 0.85 dollars/ticket.

To answer the first comment below:

Life of the project - is until the next technology is discovered. There is no exact time but it is not anytime soon. Although, current project will need some upgrades in following years (for example some new features can be added), however, it will not demand complete re-construction of the auditorium.

Revenue of the current project - I was expecting this question, because as soon as I saw the problem set, this was the first thing I saw missing. Though I asked, I was not provided with the current revenue numbers. For now lets consider the current revenue from 3D to be much more smaller number than the future revenue from 4D.

Reference no: EM131597181

Questions Cloud

What is the bank cost of preferred stock : Holdup Bank has an issue of preferred stock with a $6.15 stated dividend that just sold for $98 per share. What is the bank’s cost of preferred stock?

Compute the fair value of one year call option : Compute the fair value of a one year call option

Cost control will be effective and wastage can be eliminated : Prepare a few documents for proper document so that cost control will be effective and wastage can be eliminated.

The present worth of this series : The present worth of this series at the end of the 5 periods, where interest is 2% per t, is nearest what value?

Why theater operator should invest in new 4d auditorium : Explain why a theater operator should invest in a new 4D auditorium. You should explain your answer in NPV, Payback Period, IRR, ARR, ROI, CAGR.

Company has the commission schedule : A Company has the following commission schedule:

All the future cash flows to the end of the timeline : What will be the MIRR of the mine if we send all the future cash flows to the end of the timeline?

Leader of a small health care organization : You have been asked to prepare the initial budget for this entity. Describe the steps you would take to develop this budget and how you would prioritize.

Write an essay about a crazy idea : Write an essay about a crazy Idea like for example people should sleep in morning and work at night. No paper limit assigned just follow number of paragraphs.

User Account

All Pages