Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Over the past six months, Six Flags conducted a marketing study on improving their park experience. The study cost $3.00 million and the results suggested

Over the past six months, Six Flags conducted a marketing study on improving their park experience. The study cost $3.00 million and the results suggested that Six Flags add a kid's only roller coaster.

Suppose that Six Flags decides to build a new roller coaster for the upcoming operating season. The depreciable equipment for the roller coaster will cost $50.00 million and an additional $5.00 million to install. The equipment will be depreciated straight-line over 20 years.

The marketing team at Six Flags expects the coaster to increase attendance at the park by 5%. This translates to 121,711.00 more visitors at an average ticket price of $39.00. Expenses for these visitors are about 11.00% of sales.

There is no impact on working capital. The average visitor spends $23.00 on park merchandise and concessions. The after-tax operating margin on these side effects is 33.00%. The tax rate facing the firm is 39.00%, while the cost of capital is 10.00%.

What is the NPV of this coaster project if Six Flags will evaluate it over a 20-year period? (Six Flags expects the first year project cash flow to grow at 5% per year, going forward)

(Express answer in millions)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Contemporary Auditing

Authors: Michael C Knapp

12th Edition

357515404, 978-0357515402

More Books

Students also viewed these Finance questions

Question

2. Be sure to make eye contact with the students.

Answered: 1 week ago