Question
In: Accounting
Water World is considering purchasing a water park in Atlanta, Georgia, for $1,950,000. The new facility...
Water World
is considering purchasing a water park in Atlanta, Georgia, for
$1,950,000.
The new facility will generate annual net cash inflows of
$481,000
for
eighteight
years. Engineers estimate that the facility will remain useful for
eighteight
years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of
1010%
on investments of this nature.
LOADING...
(Click the icon to view the Present Value of $1 table.)
LOADING...
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
LOADING...
(Click the icon to view Future Value of $1 table.)
LOADING...
(Click the icon to view Future Value of Ordinary Annuity of $1 table.)Read the requirements
LOADING...
.
Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment.
First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.)
|
Amount invested |
/ |
Expected annual net cash inflow |
= |
Payback |
|
|
$1,950,000 |
/ |
$481,000 |
= |
4.1 |
years |
Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.)
|
Average annual operating income |
/ |
Average amount invested |
= |
ARR |
|
|
$237,250 |
/ |
$975,000 (how did they get this?) |
= |
24.3 |
% |
Calculate the net present value (NPV). (Enter any factor amounts to three decimal places, X.XXX.)
|
Net Cash |
Annuity PV Factor |
Present |
||
|
Years |
Inflow |
(i=10%, n=8) |
Value |
|
|
1 - 8 |
Present value of annuity |
|||
|
0 |
Investment |
|||
|
Net present value of the investment |
||||
Solutions
Expert Solution
| Average amount invested |
| Average amount invested = (Initial Investment cost + Salvage Value) / 2 |
| Average amount invested = ($1,950,000 + $0) / 2 |
| Average amount invested = $1,950,000 / 2 |
| Average amount invested = $975,000 |
|
Net present value of the investment |
| Years | Annual net cash flow | Annuity PV Factor | Present Value | |
| (i=10%, n=8) | ||||
| Year 1 - Year 8 | Present value of annuity | 481,000 | 5.335 | 2,566,135 |
| Year 0 | Less: Investment Cost | (1,950,000) | ||
| Net present value of the investment | 616,135 |
ekkarill92 answered 2 years agoRelated Solutions
Water WorldWater World is considering purchasing a water park in Atlanta, Georgia, for $1,950,000. The new...
Water WorldWater World
is considering purchasing a water park in Atlanta, Georgia,
for
$1,950,000.
The new facility will generate annual net cash inflows of
$481,000
for
eight
years. Engineers estimate that the facility will remain useful
for
eight
years and have no residual value. The company uses
straight-line depreciation, and its stockholders demand an annual
return of
10%
on investments of this nature.
LOADING...
(Click the icon to view the Present Value of $1
table.)
LOADING...
(Click the icon to...
Tidal WaveTidal Wave is considering purchasing a water park in Atlanta comma GeorgiaAtlanta, Georgia, for $...
Tidal WaveTidal Wave
is considering purchasing a water park in
Atlanta comma GeorgiaAtlanta, Georgia,
for
$ 2 comma 200 comma 000$2,200,000.
The new facility will generate annual net cash inflows of
$ 520 comma 000$520,000
for
tenten
years. Engineers estimate that the facility will remain useful
for
tenten
years and have no residual value. The company uses
straight-line depreciation. Its owners want payback in less than
five years and an ARR of
1212%
or more. Management uses a
1010%
hurdle...
Ocean World is considering purchasing a water park in Charlotte, North Carolina, for $2,100,000. The new...
Ocean World is considering purchasing a water park in Charlotte,
North Carolina, for $2,100,000. The new facility will generate
annual net cash inflows of $535,000 for eight years. Engineers
estimate that the facility will remain useful for eight years and
have no residual value. The company uses straight-line
depreciation. Its owners want payback in less than five years and
an ARR of 10% or more. Management uses a 12% hurdle rate on
investments of this nature. Requirements Requirement 1. Compute...
Water Planet is considering purchasing a water park in Miami, Florida, for $ 2,100,000. The new...
Water Planet is considering purchasing a water park in Miami,
Florida, for $ 2,100,000. The new facility will generate annual
net cash inflows of $ 535,000 for eight years. Engineers estimate
that the facility will remain useful for eight years and have no
residual value. The company uses straight-line depreciation. Its
owners want payback in less than five years and an ARR of 10% or
more. Management uses a 12% hurdle rate on investments of this
nature.
.
Requirement 1....
The Ocean City water park is considering the purchase of a new log flume ride. The...
The Ocean City water park is considering the purchase of a new
log flume ride. The cost to
purchase the equipment is $5,000,000, and it will cost an
additional $380,000 to have it installed. The equipment has an
expected life of six 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...
Three pharmacists in Atlanta, Georgia have invented a new energy drink called Booster. It has become...
Three pharmacists in Atlanta, Georgia have invented a new energy
drink called Booster. It has become the number one soft drink in
the world and you are assigned to find out how it is made. This is
a closely guarded secret known to only three original pharmacists:
Pat knows the process, and Audre and Stacey each know half of the
formula. The entire secret is stored in the Booster Vault at
Booster HQ. The Booster Vault is accessible only by...
The World Bank is considering whether to lend a country money to build a new water...
The World Bank is considering whether to lend a country money to
build a new water supply project that will allow the country to
increase its acreage of irrigated crops. The new irrigated crop
acreage is expected to generate increases in exports amounting to
$1,000 million annually in addition to increases in domestic food
sales of $200 million annually. The water supply project will cost
$5,000 million up front and $10 million a year for operation and
maintenance. The World...
You are considering a new product launch. The project will cost $1,950,000, have a 4-year life,...
You are considering a new product launch. The project will cost
$1,950,000, have a 4-year life, and have no salvage value;
depreciation is straight-line to 0. Sales are projected at 180
units per year; price per unit will be $24,000; variable cost per
unit will be $15,000; and fixed costs will be $540,000 per year.
The required return on the project is 10%, and the relevant tax
rate is 34%.
a. Based on your experience, you think the unit
sales,...
You are considering a new product launch. The project will cost $1,950,000, have a four-year life,...
You are considering a new product launch. The project will cost
$1,950,000, have a four-year life, and have no salvage value;
depreciation is straight-line to zero. Sales are projected at 180
units per year; price per unit will be $24,000, variable cost per
unit will be $15,000, and fixed costs will be $540,000 per year.
The required return on the project is 10 percent, and the relevant
tax rate is 34 percent.
a.
Based on your experience, you think...
daughn corporation is considering investing in a new facility the estimated cost of the facility is...
daughn corporation is considering investing in a new facility
the estimated cost of the facility is 1904630 it will be used for
12 years then sold for 713200 the facility will generate annual
cash inflows of 370700 and will need new annual cash outflows of
155600 the company has required rate of return of 7%. calculate the
internal rate of return on this project
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Requirements: You are to write a class called Point – this will represent a geometric point...
- (a)Design an algorithm that takes two numeric strings s1 and s2 and return another numeric string...
- Business Law Mickey has never liked Nucky so he decides to play a practical joke on...
- Find the future values of these ordinary annuities. Compounding occurs once a year. Do not round...
- What kind of theory of business ethics be applied to online Privacy issues
- What does working capital management encompass? What functional decisions are involved, and what underlying principle or...
- (Annuity payments) The Knutson Corporation needs to save $15 million to retire a $15 million mortgage...
ADVERTISEMENT