Question
Splash Nation is considering 2 options to expand its activity. Plan A: purchasing a water park in Atlanta, Georgia, for $1,910,000. The investment also includes
Splash Nation is considering 2 options to expand its activity. Plan A: purchasing a water park in Atlanta, Georgia, for $1,910,000. The investment also includes the construction of a huge parking of 15,000 places near the water park that will imply the destruction of a beautiful meadow with a century-old oak tree where local people go to rest during the week-end. The new facility will generate annual net cash inflows of $483,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. Plan B: purchasing a water park in Omaha, Nebraska, for $1,920,000. The new facility will generate annual net cash inflows of $472,000 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, and its stockholders demand an annual return of 10% on investments of this nature.
1-Compute the payback, the ROI and the NPV of these investments (show your computations). PLAN A PLAN B
2-In which project should the company invest? Justify your choice (make sentences).
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