Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

WyldRyde Ltd is a firm that runs theme parks. Many years ago, WyldRyde opened a theme park that was unsuccessful and the land and buildings

image text in transcribed

WyldRyde Ltd is a firm that runs theme parks. Many years ago, WyldRyde opened a theme park that was unsuccessful and the land and buildings are currently rented by a circus - who pays WyldRyde $50,000 a year in rent. The CEO of WyldRyde thinks that the market has changed and that the firm should consider re-opening the theme park. You have been asked to help analyse whether WyldRyde should re-open the theme park or not and you have been paid $10,000 to do the analysis. You estimate that the life of the theme park will be 3 years. You think that WyldRyde can sell tickets for $75 each and estimate that 200,000 people will visit the theme park each year. Additionally, you think WyldRyde will be able to earn an additional $750,000 per year from sales of food and drinks, which will be available in vending machines at the park. WyldRyde has operating costs of $2.5 million per year. In addition, they have further variable costs of $45 per ticket sold. WyldRyde will have to invest $10 million initially to upgrade the park's facilities. This cost can be depreciated straight line over the 3 years of the project to a terminal book value of zero. WyldRyde will also have to initially invest 100,000 in net working capital which will be fully recoverable at the end of the third year. The company tax rate is 30%. Required: a. Estimate the after-tax cash flows for the project. To do this you must present two tables. The first table should show the inputs of the accounting flows to determine the after-tax income. The second table should show the inputs to determine the after-tax cash flows. IMPORTANT: You must show each input in your table as a separate row. DO NOT group inputs together. (13 marks) WyldRyde Ltd is a firm that runs theme parks. Many years ago, WyldRyde opened a theme park that was unsuccessful and the land and buildings are currently rented by a circus - who pays WyldRyde $50,000 a year in rent. The CEO of WyldRyde thinks that the market has changed and that the firm should consider re-opening the theme park. You have been asked to help analyse whether WyldRyde should re-open the theme park or not and you have been paid $10,000 to do the analysis. You estimate that the life of the theme park will be 3 years. You think that WyldRyde can sell tickets for $75 each and estimate that 200,000 people will visit the theme park each year. Additionally, you think WyldRyde will be able to earn an additional $750,000 per year from sales of food and drinks, which will be available in vending machines at the park. WyldRyde has operating costs of $2.5 million per year. In addition, they have further variable costs of $45 per ticket sold. WyldRyde will have to invest $10 million initially to upgrade the park's facilities. This cost can be depreciated straight line over the 3 years of the project to a terminal book value of zero. WyldRyde will also have to initially invest 100,000 in net working capital which will be fully recoverable at the end of the third year. The company tax rate is 30%. Required: a. Estimate the after-tax cash flows for the project. To do this you must present two tables. The first table should show the inputs of the accounting flows to determine the after-tax income. The second table should show the inputs to determine the after-tax cash flows. IMPORTANT: You must show each input in your table as a separate row. DO NOT group inputs together. (13 marks)

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

Focus On Personal Finance

Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes

2nd Edition

0073530638, 9780073530635

More Books

Students also viewed these Finance questions

Question

2. Does your tone of voice vary with different students?

Answered: 1 week ago

Question

Do you strive to create a diverse workforce?

Answered: 1 week ago