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

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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