Question

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AdventureParks Ltd is evaluating the construction of a new theme park. The theme park would cost...

AdventureParks Ltd is evaluating the construction of a new theme park. The theme park would cost $ 495 ​million, but would operate for 20 years. AdvertureParks expects annual cash flows from operating the theme park to be $ 70.6 million and its cost of capital is 12.0 %.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should AdventureParks go ahead with the​ purchase?

d. How far off could​ AdventureParks' cost of capital estimate be before your purchase decision would​ change?

Solutions

Expert Solution

b) IRR is 13% from the graph

c) As IRR> Cost of capital and NPV>0, the project must be done and Adventure parks should go ahead with the purchase

d) Once, the cost of capital becomes 13.03%, any cost greater than this cost will make the project unviable for Adventure parks

Calculations

jeff jeffy answered 5 months ago
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