Question
Blue Corporation is an entertainment company that produces and distributes digital content and operates its own amusement parks. The company is looking into expanding into
Blue Corporation is an entertainment company that produces and distributes digital content and operates its own amusement parks. The company is looking into expanding into a new market, Hoosiersville. There are several projects the CEO considers investing in to capture the values brought by the market. One project for consideration is an improvement to the existing amusement park in Hoosierville.
If the project gets approved, the company expects an annual sale of $19.6 million from ticket sales, food, and concessions at the park, with an expected growth of 2.5% annually for a project life of 8 years. The annual operating expenses are expected to be 34% of sales, and the working capital (needed immediately) is expected to be 10% of the next years sales. The Tax Rate is 21%
In addition, the CEO determines that the new park will need to buy a new rollercoaster which will have a $3 million upfront cost. The rollercoaster will be depreciated straight-line for eight years to an expected salvage value of $0.
What will be the net change in working capital in year 8?
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