A movie theatre is considering the purchase of a new three-dimensional (3D) digital projection system. The new

Question:

A movie theatre is considering the purchase of a new three-dimensional (3D) digital projection system. The new ticket price for a 3D movie will be $15 per person, which is $2.00 higher than for the conventional two-dimensional cellulose film projection system. The new 3D system will cost $50,000.

a. If the theatre expects to sell 20,000 tickets per year, how many years (as an integer) will it take for the theatre to recover the $50,000 investment in the new system (i.e., what is the simple payback period?)
b. What is the discounted payback period (as an integer) if the MARR is 20% per year?
c. If the 3D projection system has a life of 5 years and has a salvage value of $5,000 at that time, what is the IRR of the new system?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...

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