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

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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 1,590 hours during the year. The net present values and the amount of safety engineer time required for the proposed rides are listed below:

Safety Engineer Time Required Net Present Value Proposed Ride (hours) Ride 1 S1,268,200 340 Ride2 1,152,000 360 Ride 3 6


Required:

1. Which of the proposed rides should the company build this year? 

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

Transcribed Image Text:

Safety Engineer Time Required Net Present Value Proposed Ride (hours) Ride 1 S1,268,200 340 Ride2 1,152,000 360 Ride 3 649,600 320 Ride4 644,100 190 Ride 5 540,000 250 160 Ride 6 539,200 Ride7 462,000 110 Ride 8 457,200 360 180 Ride9 403,200 Ride 10 387,500 250 Total $6,503,000 2,520

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1 This exercise can be solved by first computing the profitability index of each new ride and then r...View the full answer


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Muhammad Umair
I have done job as Embedded System Engineer for just four months but after it i have decided to open my own lab and to work on projects that i can launch my own product in market. I work on different softwares like Proteus, Mikroc to program Embedded Systems. My basic work is on Embedded Systems. I have skills in Autocad, Proteus, C++, C programming and i love to share these skills to other to enhance my knowledge too.
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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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