Question
In: Finance
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 1 year agoRelated Solutions
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