Question
Please use excel to solve. The Zhang water park is considering the purchase of a new log flume ride. The cost to purchase the equipment
Please use excel to solve.
The Zhang water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $5,000,000, and it will cost an additional $380,000 to have it installed. The equipment has an expected life of six years, and it will be depreciated using a MACRS 7-year class life. Management expects to run about 150 rides per day, with each ride averaging 25 riders. The season will last for 120 days per year. In the first year, the ticket price per rider is expected to be $5.25, and it will be increased by 4% per year. The variable cost per rider will be $1.40, and total fixed costs will be $425,000 per year. After six years, the ride will be sold for $450,000. The cost of capital is 8.5%, and its marginal tax rate is 35%. a) Calculate the initial outlay, OCF, and Terminal Cash Flow. (hint: there is no CF due to NOWC in this problem). b) Calculate the NPV, IRR, and MIRR for the project. Do you recommend to accept this project?
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