Question

In: Accounting

MidWest Amusements is in the process of reviewing 10 proposals for new rides at its theme...

MidWest Amusements is in the process of reviewing 10 proposals for new rides at its theme parks in cities scattered throughout the American heartland. The company’s only experienced safety engineer must carefully review plans and monitor the construction of all new rides. However, she is only available to work on new rides for 1,479 hours during the year. The net present values and the amount of safety engineer time required for the proposed rides are listed below:

Proposed Ride Net Present Value Safety Engineer
Time Required
(hours)
Ride 1 $ 930,000 250
Ride 2 1,152,000 360
Ride 3 615,000 300
Ride 4 593,250 175
Ride 5 542,500 250
Ride 6 506,250 150
Ride 7 448,000 112
Ride 8 687,800 362
Ride 9 637,000 182
Ride 10 418,320 252
Total $ 6,530,120 2,393

Required:

1. Which of the proposed rides should the company build this year? (Note: The incremental profit of a long-term project such as constructing a new ride is its net present value.) (You may select more than one answer. Single click the box with a check mark for correct answers and double click to empty the box for the wrong answers.)

Ride 1
Ride 6
Ride 3
Ride 9
Ride 5
Ride 4
Ride 7
Ride 10
Ride 2
Ride 8

2. What would be the total net present value of the rides built under your plan?

Total $0

Solutions

Expert Solution

Answer Q1
We have limiting factor of total hr of 1,479 during the year. Lets compute NPV/hr for each of the propose ride .
Based on highest NPV/hr we can rank the proposed ride
Proposed Ride Net Present Value Safety Engineer
Time Required
(hours)		 NPV/Hr
Ride 1 930,000 250 3720
Ride 2 1,152,000 360 3200
Ride 3 615,000 300 2050
Ride 4 593,250 175 3390
Ride 5 542,500 250 2170
Ride 6 506,250 150 3375
Ride 7 448,000 112 4000
Ride 8 687,800 362 1900
Ride 9 637,000 182 3500
Ride 10 418,320 252 1660
Total 6,530,120 2,393
Proposed ride based on ranking (Highest to lowest NPV/Hr)
Proposed Ride Net Present Value Safety Engineer
Time Required
(hours)		 NPV/Hr Commulative hr
Ride 7 448,000 112 4000 112
Ride 1 930,000 250 3720 362
Ride 9 637,000 182 3500 544
Ride 4 593,250 175 3390 719
Ride 6 506,250 150 3375 869
Ride 2 1,152,000 360 3200 1229
Ride 5 542,500 250 2170 1479
Ride 3 615,000 300 2050
Ride 8 687,800 362 1900
Ride 10 418,320 252 1660
Total 6,530,120 2,393
As total hr at commulative level reach to 1479 at Ride 5. We should build - below ride
Ride 7 Ride 1 Ride 9 Ride 4 Ride 6 Ride 2 Ride 5
Answer Q2
Total NPV
Proposed Ride Net Present Value
Ride 7 448,000
Ride 1 930,000
Ride 9 637,000
Ride 4 593,250
Ride 6 506,250
Ride 2 1,152,000
Ride 5 542,500
Total NPV 4,809,000

ekkarill92 answered 1 year ago
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