The Natural History Museum of Los Angeles County is planning to add a new virtual tour application due to the pandemic. The cost to purchase and build this application will be $1,200,000 and will cost $80,000 in maintenance every semester. Museum will also assign staff to organize these virtual events and virtually walk visitors through the museum. The salary of the staff is expected to be $100,000 every three months. After every two years of operation, the application needs to be updated and remodeled for a cost of $300,000. During remodeling, the tour will be unavailable to visitors for 3 months. The application will be operational for a total of 10 years. After that, it will be considered obsolete, and its estimated salvage value will be $1,500,000. The management of the museum estimates that the application will attract 10,000 people in the first three months of operation, and this demand will grow 3% every three months. During the major upgrades, there will be no growth in demand and after the tours restart, the number of visitors will be the same as before the upgrade. There is one period pause in demand growth because of the upgrade and next increase in visitors will happen after three months. Museum marketing manager is considering starting with a ticket price per visitor

of $11.50; however, this ticket price will decrease after 5 years as people might prefer in- person visits. The strategy is to keep ticket prices $10.50 for the first 5 year then reduce it

by 3% every year. The interest rate is 7% per year compounded monthly. The revenues obtained from tickets will be available to Museum every three months because of the governmental paperwork. a) Draw the cash-flow diagram.

b) What is the benefit (in todays $$) of this investment?

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c) What is the cost of this museum to LA county (in todays $$)?

d) Determine the benefit-cost ratio. Should the Los Angeles County Museum Management pursue this investment?

e) What would be the minimum required initial ticket price per visitor such that the investment can just break even?