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The directors of Sunshine Theme Parks Limited are considering opening a new the park me in the holiday resort. They have lease land for five years, and have been granted a license to operate the theme park for five years. Additional information Forecasts show that the initial cost of the investment will be $6 000 000. The investment of $6 000 000 includes 6 rides, costing $150 000 each. The rides are to be depreciated over 5 years using the straight-line depreciation method at a rate of 20% per year. Running expenses, including depreciation for the rides, for the first three years are forecast to be $1 000 000 per year. In year four, running expenses, including depreciation, are forecast to rise by $200 000. In year five, running expenses are forecast to stay at the same level as in year four. ·
For the first three years it is forecast that the theme park will operate for 210 days per year, with an average of s00 visitors per day, each paying a $25 entrance fee. in year four, it is forecast that the theme park will operate for 210 days, with an average of 600 visitors a day, each paying a $30 entrance fee. These figures are expected to stay the same for year five. It is company policy to have a payback period of five years on investment projects. And the opportunity cost of capital is 16%. Required: (1) Calculate the payback period of this project. (2) Calculate the net present value of this project. (3) Evaluate the project on behalf of Sunshine Theme Parks Limited. (4) Which factors should you consider, when making the investment decisions?
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