[Date]
FIN3704
Assignment 5
Semester 2 2024 -
DUE 15 October
2024
QUESTIONS WITH ANSWERS
, FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024
Question 2 (20 Marks)
The Port Saint John Water Park has thought about buying a new log flume ride.
The equipment costs R900 000 to purchase, and installation costs an additional
R56400. The equipment has a six-year expected life and will be depreciated using
the MACRS seven-year class life. Management anticipates 160 rides per day, with
45 riders on average per ride. The season Will last for 130 days per year. The ticket
price per rider is expected to be R6.25 in the first year, with an annual increase of
5%. The variable cost per rider will be R1.75, with a total annual fixed cost of
R625 000. The ride will be dismantled after six years at a cost of R354 000, and
the parts will be sold for R700 000. The capital cost is 8.50%, and the marginal tax
rate is 25%.
a. Calculate the initial outlay, annual after-tax cash flow for each year, and the
terminal cash flow. (14)
b. Calculate the NPV, IRR, and MIRR of the new equipment. Also, indicate
whether the project
To solve this problem, we need to calculate several financial components, such as
the initial outlay, annual after-tax cash flows, and terminal cash flows, then
calculate the NPV, IRR, and MIRR. Let's break it down step by step.
(a) Initial Outlay and Annual After-Tax Cash Flow
Initial Outlay
The initial outlay includes the equipment cost and installation cost:
FIN3704
Assignment 5
Semester 2 2024 -
DUE 15 October
2024
QUESTIONS WITH ANSWERS
, FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024
Question 2 (20 Marks)
The Port Saint John Water Park has thought about buying a new log flume ride.
The equipment costs R900 000 to purchase, and installation costs an additional
R56400. The equipment has a six-year expected life and will be depreciated using
the MACRS seven-year class life. Management anticipates 160 rides per day, with
45 riders on average per ride. The season Will last for 130 days per year. The ticket
price per rider is expected to be R6.25 in the first year, with an annual increase of
5%. The variable cost per rider will be R1.75, with a total annual fixed cost of
R625 000. The ride will be dismantled after six years at a cost of R354 000, and
the parts will be sold for R700 000. The capital cost is 8.50%, and the marginal tax
rate is 25%.
a. Calculate the initial outlay, annual after-tax cash flow for each year, and the
terminal cash flow. (14)
b. Calculate the NPV, IRR, and MIRR of the new equipment. Also, indicate
whether the project
To solve this problem, we need to calculate several financial components, such as
the initial outlay, annual after-tax cash flows, and terminal cash flows, then
calculate the NPV, IRR, and MIRR. Let's break it down step by step.
(a) Initial Outlay and Annual After-Tax Cash Flow
Initial Outlay
The initial outlay includes the equipment cost and installation cost:
