Question

The Astro World amusement park has the opportunity to expand its size now (the end of year 0) by purchasing adjacent property for $225,000 and adding attractions at a cost of $575,000. This expansion is expected to increase attendance by 30 percent over projected attendance without expansion. The price of admission is $35, with a $5 increase planned for the beginning of year 3. Additional operating costs are expected to be $100,000 per year. Estimated attendance for the next five years, without expansion, is as follows: Year Attendance 30,000 34,000 36,750 39,000 41,000 a. What are the pretax combined cash flows for years 0 through 5 that are attributable to the par's expansion? The cash flows attributable to the park's expansion in year 0 are $ -800,000.(Enter your response as an integer.) The cash flows attributable to the park's expansion in year 1 are $ 215,000. (Enter your response as an integer.) The cash flows attributable to the park's expansion in year 2 are $ 257,000. (Enter your response as an integer.) The cash fiows attributable to the park's expansion in year 3 are $ 341,000. (Enter your response as an integer.) The cash flows attributable to the park's expansion in year 4 are $368,000. (Enter your response as an integer.) The cash flows attributable to the park's expansion in year 5 are $392,000. (Enter your response as an integer.) b. Ignoring tax, depreciation, and the time value of money, determine how long it will take to recover (pay back) the investment. It will take 2.96 years. (Enter your response rounded to two decimal places.)

My question is for b. How did we get 2.96 years. Please, show the steps clearly.

Answer 1

Year	Cash Flow	Cumulative Cash flow
0	$ (800,000)	$                        (800,000)
1	$   215,000	$                        (585,000)
2	$   257,000	$                        (328,000)
3	$   341,000	$                            13,000
4	$   368,000	$                          381,000
5	$   392,000	$                          773,000

Payback period	2+ (328,000/$341,000)
Payback period	2.96 Years

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