Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q1. Find the projects Firm Free Cash Flow (FFCF) at time t = 0, t = 1, t = 10 and NPV of the amusement

image text in transcribed

Q1. Find the projects Firm Free Cash Flow (FFCF) at time t = 0, t = 1, t = 10 and NPV of the amusement park project.

Question 5 (CFFA total of 12 marks): Jay's Amusement Park is considering the introduction of a new ride. See the relevant information below. Note that 'k' is an abbreviation for kilo. So $1k is $1,000. The unit sales is measured in tickets sold. 10 years $900k See Note 4 80k Amusement Park Ride Project Data Project life Initial construction of ride equipment Depreciation of ride equipment pa Unit sales at end of each year Sale price per unit Variable cost per unit Ride operator salary pa, paid in arrears Annual maintenance costs Required return on assets (WACC before tax) $10 $4 $10k $30k 10% pa Tax rate 30% Note 1: The owner has detailed plans that were previously drawn up by an engineer at a cost of $60k. Market research has also been undertaken at a cost of $5k to determine a suitable ticket price. Both of these costs are tax deductible. Note 2: An initial (t=0) $20k investment into customer safety goggles (current assets) is required. These current assets will be used up and replaced at the end of each year. These current assets (CA) are expensed in the variable cost per unit at the end of each year, but the investment in these CA happens at the start of each year. Note 3: The owner expects this ride to attract new visitors to the park and thus increase the ticket sales for existing rides. The expected increase in revenue is expected to be $300k. Note 4: The ride equipment is expected to last for 10 years with regular maintenance. However, the Tax Office only allows the equipment to be depreciated straight line to zero over 9 years. Note 5: The ride equipment can be sold to a competitor at time t=10 for $50,000 Note 6: The project will be financed entirely by equity. Provide all answers in thousands of dollars, with final answers rounded to 2 decimal places. It is not necessary to show any working. Writing the correct answer alone will score full marks. However, if you make a mistake, you will score poorly. Writing the working may allow you to score partial marks even if your final answer is wrong. Question 5 (CFFA total of 12 marks): Jay's Amusement Park is considering the introduction of a new ride. See the relevant information below. Note that 'k' is an abbreviation for kilo. So $1k is $1,000. The unit sales is measured in tickets sold. 10 years $900k See Note 4 80k Amusement Park Ride Project Data Project life Initial construction of ride equipment Depreciation of ride equipment pa Unit sales at end of each year Sale price per unit Variable cost per unit Ride operator salary pa, paid in arrears Annual maintenance costs Required return on assets (WACC before tax) $10 $4 $10k $30k 10% pa Tax rate 30% Note 1: The owner has detailed plans that were previously drawn up by an engineer at a cost of $60k. Market research has also been undertaken at a cost of $5k to determine a suitable ticket price. Both of these costs are tax deductible. Note 2: An initial (t=0) $20k investment into customer safety goggles (current assets) is required. These current assets will be used up and replaced at the end of each year. These current assets (CA) are expensed in the variable cost per unit at the end of each year, but the investment in these CA happens at the start of each year. Note 3: The owner expects this ride to attract new visitors to the park and thus increase the ticket sales for existing rides. The expected increase in revenue is expected to be $300k. Note 4: The ride equipment is expected to last for 10 years with regular maintenance. However, the Tax Office only allows the equipment to be depreciated straight line to zero over 9 years. Note 5: The ride equipment can be sold to a competitor at time t=10 for $50,000 Note 6: The project will be financed entirely by equity. Provide all answers in thousands of dollars, with final answers rounded to 2 decimal places. It is not necessary to show any working. Writing the correct answer alone will score full marks. However, if you make a mistake, you will score poorly. Writing the working may allow you to score partial marks even if your final answer is wrong

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_2

Step: 3

blur-text-image_3

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

Behavioural Approaches To Corporate Governance

Authors: Cameron Elliott Gordon

1st Edition

1138611395, 978-1138611399

More Books

Students also viewed these Finance questions

Question

a. When did your ancestors come to the United States?

Answered: 1 week ago

Question

d. What language(s) did they speak?

Answered: 1 week ago

Question

e. What difficulties did they encounter?

Answered: 1 week ago