Ocean World is considering purchasing a water park in Orlando, Florida, for $2,100,000. The new facility will generate annual net cash inflows of $520,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 12% hurdle rate on investments of this nature.

Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.712 3 0.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.675 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 5 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 15 0.861 0.743 0.642 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 25 0.780 0.610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 40 0.672 0.453 0.307 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 X i Reference Future Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728 1.04 1.360 1.082 1.126 1.170 1.216 1,262 1.464 1.574 1.689 1.811 1.939 2.074 2.488 5 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 6 1.062 1.126 1.194 1.265 1.340 1.419 1.587 1.772 1.974 2.195 2.436 2.700 2.986 7 1.072 1.149 1.230 1.316 1.407 1.504 1.714 1.949 2.211 2.502 2.826 3.185 3.583 1.477 8 1.083 1.172 1.267 1.369 1.594 1.851 2.144 2.476 2.853 3.278 3.759 4.300 9 1.094 1.195 1.305 1.423 1.551 1.689 1.999 2.358 2.773 3.252 3.803 4.435 5.160 1.219 10 1.105 1.344 1.480 1.629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 11 1.116 1.243 1.384 1.539 1.710 1.898 2.332 2.853 3.479 4,226 5.117 6.176 7.430 8.916 12 1.127 1.268 1.426 1.601 1.796 2.012 2.518 3.138 3.896 4.818 5.936 7.288 13 1.138 1.294 1.469 1.665 1.886 2.133 2.720 3.452 4,363 5.492 6.886 8.599 10.699 14 1.149 1.319 1.513 1.732 1.980 2.261 2.937 3.797 4.887 6.261 7.988 10.147 12.839 4.177 15 1.161 1.346 1.558 1.801 2.079 2.397 3.172 5.474 7.138 9.266 11.974 15.407 20 1.220 1.486 1.806 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 25 1.282 1.641 2.094 2.666 3.386 4,292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 29.960 50.950 237.376 30 1.348 1.811 2.427 3.243 4,322 5.743 10.063 17.449 85.850 143.371 40 3.262 10.286 188.884 378.721 1.489 2.208 4.801 7.040 21.725 45.259 93.051 750.378 1,469.772 N t LO Present Value of Annuity of $1 Periods 18% 19% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 20% 0.833 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 3 2.94 2.884 2.829 2775 2723 2.673 2.577 2487 2.402 2,322 2.246 2.174 2.106 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2798 2.690 2.589 4.452 5 4.853 4,713 4,580 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 5.601 4.623 5.206 6 5.795 5.417 5.242 5.076 4.917 4.355 4.111 3.889 4,288 3.685 4.039 3.498 3.326 6.230 6.002 4.868 3.605 7 6.728 6.472 5.786 5.582 4.564 3.812 7.325 6.210 4.968 4.639 4.078 8 7,652 7.020 6.733 6.463 5.747 5.335 4.344 3.837 7.108 6.802 6.247 5.328 4.946 4.031 4,192 8.566 8.162 7.786 7.435 5.759 4.607 4.303 10 5.216 4.833 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 4.494 5.02 11 10.368 253 8.760 8.3 7,139 9 5.938 656 4.327 11.255 4.439 12 10.575 9.954 9.385 8.863 8.384 7,536 6.814 6.194 5.660 5.197 4,793 9.986 7.904 13 12.134 11.348 10.635 9.394 8.853 7.103 6.424 5.842 5.342 4.910 4.533 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4,611 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7,606 6.811 6.142 5.575 5.092 4.675 12.462 11.470 7.469 5.929 20 18.046 16.351 14.877 13.590 9.818 8.514 6.623 5.353 4.870 19.523 17.413 15.622 14.094 12.783 10.675 17.292 15.372 13.765 19.793 17.159 4948 4979 25 22.023 9.077 7.843 6.873 6.097 5.467 22.396 19.600 32.835 27.355 23.115 7.003 30 25.808 11.258 9.427 8.055 6.177 5.517 6.233 4.997 40 15.046 11.925 9.779 8.244 7.105 5.548 Reference Future Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.010 2.020 2.030 2.040 2.050 2.060 2.080 2.100 2.120 2.140 2.160 2.180 2.200 3 3.030 3.060 3.091 3.122 3.153 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 4 4.060 4.122 4.184 4.246 4.310 4.375 4.506 4.641 4,779 4.921 5.066 5.215 5.368 5 5.101 5.204 5.309 5.416 5.526 5.637 5.867 6.105 6.353 6.610 6.877 7.154 7.442 6 6.152 6.308 6.468 6.633 6.802 6.975 7.336 7,716 8.115 8.536 8.977 9.442 9.930 7 7.214 7,434 7.662 7.898 8.142 8.394 8.923 9.487 10.089 10.730 11.414 12.142 12.916 8 8.286 8.583 8.892 9.214 9.549 9.897 10.637 11.436 12.300 14.776 13.233 14.240 15.327 16.499 10.159 13.579 17.519 20.799 9 9.369 9.755 10.583 11.027 11.491 12.488 16.085 19.086 10 10.462 12.578 15.937 21.321 23.521 10.950 11.464 12.006 13.181 14.487 17.549 19.337 25.959 11 12.808 28.755 11.567 12.169 13.412 13.486 14.207 14.972 16.645 18.531 20.655 23.045 25.733 32.150 12 14.192 24.133 34.931 12.683 15.026 15.917 16.870 18.977 21.384 27.271 30.850 39.581 13 17.713 28.029 42.219 13.809 14.680 15.618 16.627 18.882 21.495 24.523 32.089 36.786 48.497 14.947 16.097 17.086 27.975 31.772 43.672 59.196 14 15.974 18.292 19.599 21.015 24.215 32.393 37.581 50.818 23.276 51,660 72.035 15 17.293 18.599 20.024 21.579 27.152 37.280 43.842 60.965 24.297 33.066 91.025 146.628 20 22.019 26.870 29.778 36.786 45.762 57.275 72.052 115.380 186.688 32.030 47.727 471.981 25 28.243 36.459 41.646 54.865 73.106 98.347 133.334 181.871 249.214 342.603 30 40.568 47,575 66.439 356.787 530.312 790.948 34.785 56.085 79.058 113.283 164.494 241.333 1,181.882 1,342.025 2,360.757 4,163.213 40 48.886 154.762 7,343.858 60.402 75.401 95.026 120.800 259.057 442.593 767.091 Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (lf you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period is years (Round the percentage to the nearest tenth percent.) The ARR (accounting rate of return) is %. (Round your answer to the nearest whole dollar.) Net present value $ The IRR (internal rate of return) is between Requirement 2. Recommend whether the company should invest in this project. Recommendation

Question

Ocean World is considering purchasing a water park in Orlando, Florida, for $2,100,000. The new facility will generate annual net cash inflows of $520,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 10% or more. Management uses a 12% hurdle rate on investments of this nature.

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Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.712 3 0.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.675 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 5 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 15 0.861 0.743 0.642 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 25 0.780 0.610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 40 0.672 0.453 0.307 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 X i Reference Future Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728 1.04 1.360 1.082 1.126 1.170 1.216 1,262 1.464 1.574 1.689 1.811 1.939 2.074 2.488 5 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 6 1.062 1.126 1.194 1.265 1.340 1.419 1.587 1.772 1.974 2.195 2.436 2.700 2.986 7 1.072 1.149 1.230 1.316 1.407 1.504 1.714 1.949 2.211 2.502 2.826 3.185 3.583 1.477 8 1.083 1.172 1.267 1.369 1.594 1.851 2.144 2.476 2.853 3.278 3.759 4.300 9 1.094 1.195 1.305 1.423 1.551 1.689 1.999 2.358 2.773 3.252 3.803 4.435 5.160 1.219 10 1.105 1.344 1.480 1.629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 11 1.116 1.243 1.384 1.539 1.710 1.898 2.332 2.853 3.479 4,226 5.117 6.176 7.430 8.916 12 1.127 1.268 1.426 1.601 1.796 2.012 2.518 3.138 3.896 4.818 5.936 7.288 13 1.138 1.294 1.469 1.665 1.886 2.133 2.720 3.452 4,363 5.492 6.886 8.599 10.699 14 1.149 1.319 1.513 1.732 1.980 2.261 2.937 3.797 4.887 6.261 7.988 10.147 12.839 4.177 15 1.161 1.346 1.558 1.801 2.079 2.397 3.172 5.474 7.138 9.266 11.974 15.407 20 1.220 1.486 1.806 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 25 1.282 1.641 2.094 2.666 3.386 4,292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 29.960 50.950 237.376 30 1.348 1.811 2.427 3.243 4,322 5.743 10.063 17.449 85.850 143.371 40 3.262 10.286 188.884 378.721 1.489 2.208 4.801 7.040 21.725 45.259 93.051 750.378 1,469.772 N t LO Present Value of Annuity of $1 Periods 18% 19% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 20% 0.833 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 3 2.94 2.884 2.829 2775 2723 2.673 2.577 2487 2.402 2,322 2.246 2.174 2.106 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2798 2.690 2.589 4.452 5 4.853 4,713 4,580 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 5.601 4.623 5.206 6 5.795 5.417 5.242 5.076 4.917 4.355 4.111 3.889 4,288 3.685 4.039 3.498 3.326 6.230 6.002 4.868 3.605 7 6.728 6.472 5.786 5.582 4.564 3.812 7.325 6.210 4.968 4.639 4.078 8 7,652 7.020 6.733 6.463 5.747 5.335 4.344 3.837 7.108 6.802 6.247 5.328 4.946 4.031 4,192 8.566 8.162 7.786 7.435 5.759 4.607 4.303 10 5.216 4.833 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 4.494 5.02 11 10.368 253 8.760 8.3 7,139 9 5.938 656 4.327 11.255 4.439 12 10.575 9.954 9.385 8.863 8.384 7,536 6.814 6.194 5.660 5.197 4,793 9.986 7.904 13 12.134 11.348 10.635 9.394 8.853 7.103 6.424 5.842 5.342 4.910 4.533 14 13.004 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4,611 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7,606 6.811 6.142 5.575 5.092 4.675 12.462 11.470 7.469 5.929 20 18.046 16.351 14.877 13.590 9.818 8.514 6.623 5.353 4.870 19.523 17.413 15.622 14.094 12.783 10.675 17.292 15.372 13.765 19.793 17.159 4948 4979 25 22.023 9.077 7.843 6.873 6.097 5.467 22.396 19.600 32.835 27.355 23.115 7.003 30 25.808 11.258 9.427 8.055 6.177 5.517 6.233 4.997 40 15.046 11.925 9.779 8.244 7.105 5.548 Reference Future Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.010 2.020 2.030 2.040 2.050 2.060 2.080 2.100 2.120 2.140 2.160 2.180 2.200 3 3.030 3.060 3.091 3.122 3.153 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 4 4.060 4.122 4.184 4.246 4.310 4.375 4.506 4.641 4,779 4.921 5.066 5.215 5.368 5 5.101 5.204 5.309 5.416 5.526 5.637 5.867 6.105 6.353 6.610 6.877 7.154 7.442 6 6.152 6.308 6.468 6.633 6.802 6.975 7.336 7,716 8.115 8.536 8.977 9.442 9.930 7 7.214 7,434 7.662 7.898 8.142 8.394 8.923 9.487 10.089 10.730 11.414 12.142 12.916 8 8.286 8.583 8.892 9.214 9.549 9.897 10.637 11.436 12.300 14.776 13.233 14.240 15.327 16.499 10.159 13.579 17.519 20.799 9 9.369 9.755 10.583 11.027 11.491 12.488 16.085 19.086 10 10.462 12.578 15.937 21.321 23.521 10.950 11.464 12.006 13.181 14.487 17.549 19.337 25.959 11 12.808 28.755 11.567 12.169 13.412 13.486 14.207 14.972 16.645 18.531 20.655 23.045 25.733 32.150 12 14.192 24.133 34.931 12.683 15.026 15.917 16.870 18.977 21.384 27.271 30.850 39.581 13 17.713 28.029 42.219 13.809 14.680 15.618 16.627 18.882 21.495 24.523 32.089 36.786 48.497 14.947 16.097 17.086 27.975 31.772 43.672 59.196 14 15.974 18.292 19.599 21.015 24.215 32.393 37.581 50.818 23.276 51,660 72.035 15 17.293 18.599 20.024 21.579 27.152 37.280 43.842 60.965 24.297 33.066 91.025 146.628 20 22.019 26.870 29.778 36.786 45.762 57.275 72.052 115.380 186.688 32.030 47.727 471.981 25 28.243 36.459 41.646 54.865 73.106 98.347 133.334 181.871 249.214 342.603 30 40.568 47,575 66.439 356.787 530.312 790.948 34.785 56.085 79.058 113.283 164.494 241.333 1,181.882 1,342.025 2,360.757 4,163.213 40 48.886 154.762 7,343.858 60.402 75.401 95.026 120.800 259.057 442.593 767.091 Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (lf you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period is years (Round the percentage to the nearest tenth percent.) The ARR (accounting rate of return) is %. (Round your answer to the nearest whole dollar.) Net present value $ The IRR (internal rate of return) is between Requirement 2. Recommend whether the company should invest in this project. Recommendation