Question

ACC 321 BBAs6 Problem (chapter 21) The Happy Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $450,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. It is estimated that the following annual costs and revenues would be associated with the ride: 250,000 Less operating expenses: Maintenance Salaries .. Depreciation $40,000 90,000 27,000 . . . Total operating expenses 187,000 63,000 1) Calculate the payback period for this potential new ride. Assume Park will not accept any new ride over 6 years payback. 2) Calculate the Internal rate of return for the new ride. 3) Determine the net present value of the new ride. Assume required rate of return of 12%. 4) Based on your calculations should the Park invest in the new ride. 5) what if income taxes had been used in this analysis and the rate for Park is 25%. Recalculate whatever is needed to reach a conclusion about investing in the ride?