Suppose Lincoln Park Zoo decided to charge admission just for the newly renovated area described in Problem
Question:
Suppose Lincoln Park Zoo decided to charge admission just for the newly renovated area described in Problem 11. Suppose the price is set at the average perceived benefit per visit, reasoning that the renovation could then pay for itself over the planning horizon. What, if anything, is the flaw to this logic? Be specific.
Data from in problem 11
Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of \(\$ 1,800,000\). Addition of new species will cost another \(\$ 310,000\). Additional maintenance, food, and animal care and replacement will cost \(\$ 145,000\) in the first year, increasing by 3 percent each year thereafter. The zoo has been in operation since 1868 and is expected to continue indefinitely; however, it is common to use a 20-year planning horizon on all new investments. Salvage value on facilities after 20 years will be 40 percent of initial cost. Interest is 7 percent. An estimated 1.5 million visits per year are made to the zoo, and the cost remains free year-round. How much additional benefit per visit, on average, must the visitors perceive to justify the renovation?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt