Investment appraisal Bloom (Pty) Ltd operates tourist attraction in major cities. The company is considering opening a new attraction in South Africa. The initial investment will require a purchase of equipment costing R120 million. The equipment has an estimated useful life of 5 years and will depreciate on a straight-line basis. The scrap value at the end of 5 years is expected to be R50 million. Revenue and variable costs It is expected that there will be 880 000 visitors per year and that this number will remain constant per year for the life of the project. The entrance fee for the attraction will be R40 per visitor. Each visitor is expected to spend an average of R15 on souvenirs and R5 on refreshments. The variable costs are estimated to be R25 per visitor. This includes the variable cost of operating the attraction and the cost of souvenirs and refreshments. Fixed operation costs. The company will lease the land on which the attractions is to be situated at cost of R500 000 per annum. The lease cost will remain the same throughtout the life of the project. Maintenance costs are estimated to be R200 000

Determine whether bloom (Pty) Ltd should invest in the expansion of its tourist attraction business based on its existing investment criteria.