Question

6. The city is considering creating a new entertainment park to provide an additional recreational option for its citizens. The center would contain go-karts, a mini-golf course, and a game room. The construction costs of the center would be incurred immediately, but the park would open in stages. The game room would be open after one year, the mini-golf course after two years, and the go-kart track after three years. After opening in year 1, the park would be in operation for the 15 years. At the end of 15 years the entertainment facilities will be worn out, and worth nothing. No admission fee will be charged, but patrons will be charged a nominal fee to use each of the attractions. The data for the project are indicated in the Table below. Note that all values are in Nominal Dollar Terms (actual market values), initially valued in the end of year zero dollars, and increasing at the rate of X% per year in nominal terms. The inflation rate is 2% per annum. All annual values accrue at the end of each year. IIIIIIIII IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII IIIIIIIIIIIIIII Table Variable Benefits/Costs (Start in Period 1) Benefits Revenue from game room: Year 1 value = $95,000, rising at 6% per year. Revenue from mini-golf: Year 2 value = $160,000, rising at 3% per year. Revenue from go-karts: Year 3 value = $225,000, rising at 5% per year. Operating Costs Annual Labor Costs: Initial Value = $150,000 and rising at 5% per year. Annual Energy Costs: Initial Value = $20,000 and rising 6% per year. Annual Maintenance Costs: Initial Value $45,000 and rising 7% per year. Annual Insurance Costs: Initially $14,000 and rising 4% per year. Fixed Costs (Incurred in Period 0) Equipment purchase: $920,000 Equipment installation: $270,000 Land Costs: $625,000 Licensing, inspections, etc: $10,000 Your Task: Calculate the NPV of the investment at a REAL discount rate of 5%. Based on your analysis, indicate whether or not you would recommend creating the entertainment park.

Answer 1

SHA Revenue computations Revenue from pare room le 1 17 35,000 | 100, 700||196,742 | 113.1471 | 21 131 95,000 5,700 112,147 6.789 119.985- 142,845 Year Previous year revenue Current year growth Current year revenue (Previous year growth) 119,935 7.196 27,131| 134.750 086 10 151,416 9.085 11 160,501 9.630 12 1 70,131 10.208 13 180,338 10,820 14 191,159 11470 202,628 12.158 7.628 . 95,000 100,700 106,742 113,147 119.935 119,935 127,131 124.759 142,845 160,501 170,131 180,338 191,159 202,628 214,786 1 013 8 2 15 Site ME 10 11 3314 191.018 1 96,780 202,583 208.764 2115,027 221,477 5.731 5. 90 6 .080 6.263 6.451 Revenue frotinini polfi 6 174 875 180 081 5.245 5.402 H 2 Year Previous yearrevenue Current year growth Current year revenue (Previous year + growth) 160,000 4.800 164,00 4.544 169.744 ,092 185.4841 5.50 28,122 6.844 5 6.644 160,000 164,800 169,741 174,836 185, 184 191,048 202,683 208,761 2 15,027 221,477 228,122 234,965 l 12 Revenue from to-karts 2 9 243.06 6 0,4662734597737.163 12.403 13.023 3.674 M 14.358 236.250 111.813 295.000 111250 10 301,522 15026 11 316.598 1 5.820 12 13 332.427349,049366.501 16.621 17.452 18.325 Year Previous year revenue Current year prowth Current year revenue (Previous year + growth) 384,826 19,241 260,166 225.000 273,489 286,250 287,163 301,522 316,598 132,427 384,826 349,049 404,068 3 66, 501

Operating cost computations HINDI 1 Year Previous year cost Current year growth Current year Cost Previous year + growth) R 2 1 50,000 7.500 3 1 57,500 7,875 4 165,375 3,269 Annual labour costs 6 7 182,326 191,442 9,116 9 ,572 5 1 73,644 8 ,682 8 201,014 10,051 9 211,065 10,553 10 221.518 11,081 11 232.699 1 1635 12 244,314 12.217 13 14 15 256,551 269,378 792.347 12,828 1 3,469 F 14.142 150,000 157,500 165,375 173,614 182,326 191,442 201,014 211,065 221,618 232,699 244,334 256,551 269,378 282,847 296,990 - Annual Energy costs 1 4 11 Year Previous year text Current year growth Current year Cost (Previous year growth) 2 20,000 1.200 . 3 21.200 1.272 10 31.877 5 23,820 .429 22,472 1,348 25,250 1,515 26,765 1.606 28,370 1.702 30,073 1,804 33.790 2.02 35,817 .149 37,965 4 0.244 4 2.659 2.2782 .4152 .560 1 1.913 20,000 21,200 22,472 23,820 25,250 26,765 28,370 30,073 31,877 33.790 35,817 37.966 40,244 42,659 45,218 1 w Year Previous year cost Current year growth Current year Cost (Previous year+ prowth) 2 45.000 3,150 3 48,150 ,371 4 51,521 3,606 5 55,127 3,859 Annual maintenance costs 6 7 XT 58,986 63,115 67,533 4,129 4,418 4,727 10 11 12 13 72,260 77,31882.78188,5229 ,718 101,349 106.443 5,0585 ,412 5.291 6.1976.63070947-591 3 15,000 48,150 51,521 55,127 58,986 63,115 67,533 72,260 77,318 82,731 88,522 94,718 101,349 108,443 116,034 SI Year Previous year cost Current year growth Current year Cost (Prevlous year+ growth) 2 14.000 560 3 14,560 582 Annual Insurance costs 4 5 78 15,142 1 5,748 16,378 1 7,033 1 7.714 506630655 681709 1 8.423 1 10 11 12 13 19.160 19.926 20.723 21.552 22.414 23,311 766797829362897932 737 14,000 14,560 15,748 15,112 16,378 17,033 17,714 18,423 19,160 19,926 20,723 21,552 22,414 24,243 23,311

Cashflow computation o 13 14 15 Year Initial Cashflows Equipment purchase Equipment installation Land Lusts Licensing 920,000) (270 ) (625,00) (10,000) SYAH BILIETAILERREFERETHER 95, 100, 101,42 1 10 BOU LE22 134,759 X 1 273,489 112,815 1 91,04 2, 1 151416 19078 1 2 1 60,501 202.683 1 619 170,131 130 338 191.159 208,761215,027 221.477 82,427144,0493656,501 202.628 228.122 384.25 214,736 234.965 40240 Intermediate cashflows Revenue From game room From mini pall hirm en karts Operating costs Annual labour costs Annual Cnergy costs Annual maintenance costs Annual Insurance Lust Total Cashflows (initial Intermediate cashflows] py factor real interest rate GE 150.0001 120.000) 145.000 1 13,14 14. 119,935 127,131 T ON, 144 174,30 1800 D 4, D5200,455 R 17,544 1182.226) (191,442 128,820) 25,2501 26.765 1 55,12758,586) 63,115) 170 (21,200 (46. 0 0 122.4 5 1 201,014 20.370) (67,533 1211055 30,073) 172.260 (221.61011282.699 21.877 139. 9 33.220 3 11 132.731) 1296, 990) 145,218) 12.44.334 5 ,817 168,5221 (20,723) 1256,55171269 3781292 B (37.966) 100.24) 3289 (SM, 718) 101,49) (108.4431 21,552) 22.414) glass 243) 279.100 (1.825,000) 2541,01 1289,236 121,925 310,635 345,752 11134 (131/100) -> L6000 21 0.7035 10.7462 7107 D: 5847 0.5568 0:5051 04670 198.351 209,076 206, 335 195.266 17497 203, 6 0 0,974 193.217190,2011 1971 172,513 , 11.825.000 1857261830 2 121.00 Present value of cashflows Net Present value of Cashflows Since the Net Present Value of Cashflows is Positive recommend taking the entertainment project
Considering a limitation on 65000 characters in answering a question was unable to post the excel working here. Also had to compress the picture quality as there is a restriction that picture quality cannot be more than 2MB per picture. Kindly excuse the quality in the pictures posted. Please reach out if excel is needed.