#4. (10 points) Net Present Value Problem (Ch. 16) Six Flags Amusement Park has asked for your assistance in deciding whether or not to add a set of 6 additional cars to its existing roller coaster. The cost to purchase and install the new set of six cars would be $400,000. This set of cars would have a salvage value of $10,000 at the end of 10 years when the roller coaster reaches the end of it's useful life. By adding the set of cars, Six Flags believes it can generate $50,000 of additional roller coaster ticket sales revenue each year over the next ten years. Six Flags has an average cost of capital of 6%. a) Based on the Net Present Value would you recommend that Six Flags accept or reject the idea of adding the new set of cars to its roller coaster? Show the calculations which support your answer (Present Value Tables on page 590 of the textbook should be used). b) Is the rate of return on this investment above or below the cost of capital (desired rate of return) for Six Flags? c) What would be the payback period of the new set of cars? TABLE 1 Present Value of $1 4% 5% 6% 7% 1 0.961535 0.952381 0.943396 0.934579 2 0.924556 0.907029 0.889996 0.873439 0.868996 0.863838 0.839619 0.816298 0.854804 0.522702 0.792094 0.762895 5 0.821927 0.783526 0.747258 0.712956 6 0.790315 0.746215 0.704961 0.666342 0.759919 0.710681 0.665057 0.622750 S 0.730690 0.6768390.627412 0.582009 9 0.702587 0.6446090.591598 0.543934 10 0.675564 0.6139130.558395 0.508349 11 0.649551 0.584679 0.526758 0.475093 12 0.6245970.556837 0.496969 0.444012 13 0.600574 0.530321 0.4688390.414964 14 0.5774750.505068 0.442301 0.387817 15 0.555265 0.4810170.417265 0.362446 16 0.53390S 0 .458112 0.393646 0.338735 17 0.513373 0.436297 0.371364 0.316574 IS 0.493628 0.415521 0.350344 0.295564 190.474642 0.395734 0.330513 0.276508 20 0.456387 0.376889 0.311505 0.258419 8% 9% 10% 0.925926 0.917431 0.909091 0.857339 0.841680 0.826446 0.793832 0.772183 0.751315 0.735030 0.708425 0.683013 0.680583 0.649931 0.620921 0.630170 0.596267 0.564474 0.583490 0.547034 0.513158 0.540269 0.501866 0.466507 0.500249 0.460428 0.424098 0.463193 0.422411 0.385543 0.428883 0.387533 0.350494 0.397114 0.355535 0.318631 0.36769S 0.3261790.289664 0.340461 0.299246 0.263331 0.315242 0.274538 0.239392 0.291890 0.251870 0.217629 0.2702690.231073 0.197845 0.250249 0.211994 0.179559 0.231712 0.194490 0.163508 0.214548 0.178431 0.148644 12% 14% 16% 0.892857 0.577193 0.862069 0.797194 0.769468 0.743163 0.711780 0.674972 0.640658 0.635519 0.592080 0.552291 0.567427 0.519369 0.476113 0.506631 0.455587 0.410442 0.452349 0.399637 0.353830 0.403883 0.350559 0.305025 0.360610 0.307508 0.262953 0.3219730.269744 0.226684 0.287476 0.236617 0.195417 0.256675 0.2075590.168463 0.229174 0.182069 0.145227 0.204620 0.159710 0.125195 0.182696 0.140096 0.107927 0.163122 0.122892 0.093041 0.145644 0.107800 0.080207 0.130040 0.094561 0.069144 0.116107 0.082948 0.059607 0.103667 0.072762 0.051385 20% 0.833333 0.694444 0.578704 0.482253 0.401878 0.334898 0.279082 0.232568 0.193807 0.161506 0.134558 0.112157 0.093464 0.077887 0.064905 0.0540SS 0.045073 0.037561 0.031301 0.026084 ABLE 2 Present Value of an Annuity of $1 4% 5% 6% 7% 8% 9% 10% 12% 0.961538 0.952381 0.943396 0.934579 0.925926 0.917431 0.909091 0.892857 2 1.586095 1.859410 1.833393 1.S0S018 1.783265 1.759111 1.735537 1.690051 3 2.7750912.7232482.6730122.6243162.577097 2.531295 2.486852 2.401831 4 3.6298953.5459513.4651063 .387211 3.312127 3.239720 3.169865 3.037349 5 4.451822 4.329477 4.212364 4.100197 3.992710 3.889651 3.790787 3.604776 5.242137 5.075692 4.917324 4.766540 4.6228SO 4.485919 4.355261 4.111407 6.002055 5.7863735.582381 5.389289 5.206370 5.032953 4.8684194.563757 S 6.732745 6.463213 6.209794 5.9712995.7466395.5348195.334926 4.967640 9 7.435332 7.107822 6.801692 6 .5152326.246SSS 5.995247 5.759024 5.328250 10 S.110896 7.721735 7.360087 7.023582 6.710051 6.417658 6.144567 5.650223 118.760477 8.3064147.5568757 .495674 7.138964 6.805191 6.495061 5.937699 12 9.385074 S.563252 S.383844 7.942686 7.536078 7.160725 6.813692 6.194374 13 9.9856489 .3935738.8526838 .3576517.903776 7.486904 7.103356 6.423543 14 10.563123 9.898641 9.294954 8.745468 8.244237 7.786150 7.366687 6.628168 15 11.118387 10.379658 9.712249 9.107914 8.559479 9.0606SS 7.606080 6.510864 16 11.652296 10.837770 10.1058959.4466498.851369 S.312558 7.8237096.973986 17 12.165669 11.274066 10.477260 9 .7632239.121638 8.543631 8.021553 7.119630 18 12.659297 11.689587 10.827603 10.059087 9.371887 S.755625 8.201412 7.249670 19 13.133939 12.085321 11.158116 10.335595 9.603599 5.905115 8.364920 7.365777 20 13.590326 12.462210 11.469921 10.5940149.8151479.128546 8.513564 7.469444 14% 16% 0.577193 0.562069 1.646661 1.605232 2.321632 2.245890 2.913712 2.798181 3.433051 3.274294 3.55566S 3.684736 4.288305 4.035565 4.638564 4.343591 4.946372 4.606544 5.216116 4.833227 5.4527335.028644 5.660292 5.197107 5.842362 5.342334 6.002072 5.467529 6.142165 5.575456 6.265060 5.668497 6.372859 5.748704 6.467420 5.817848 6.550369 5.877455 6.623131 5.928841 209 0.533. 1.527 2.106 2.588 2.990 3.325. 3.604: 3.837 4.0309 4.192 4.327 4.439 4.532 4.610: 4.675 4.729: 4.774 4.812 4.843. 4.869