,FIN3704 Assignment 5 (COMPLETE ANSWERS) Semester
2 2024 - DUE 15 October 2024 ; 100% TRUSTED Complete,
trusted solutions and explanations.
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 evaluate the feasibility of the new log flume ride at the Port
Saint John Water Park, we'll perform a financial analysis
including the calculation of the initial outlay, annual after-tax
cash flows, terminal cash flow, NPV, IRR, and MIRR.
a. Initial Outlay, Annual After-Tax Cash Flow, and
Terminal Cash Flow
, 1. Initial Outlay
The initial outlay includes the cost of the equipment, installation
costs, and any other initial expenditures:
Initial Outlay=Equipment Cost+Installation Cost\text{Initial
Outlay} = \text{Equipment Cost} + \text{Installation Cost}
Initial Outlay=Equipment Cost+Installation Cost
=R900,000+R56,400=R956,400= R900,000 + R56,400 =
R956,400=R900,000+R56,400=R956,400
2. Annual Cash Flows Calculation
a. Revenue Calculation
1. Ticket Price per Rider:
o Year 1: R6.25
o Year 2: R6.25 × 1.05 = R6.5625
o Year 3: R6.5625 × 1.05 = R6.890625
o Year 4: R6.890625 × 1.05 = R7.23515625
o Year 5: R7.23515625 × 1.05 = R7.5969130625
o Year 6: R7.5969130625 × 1.05 = R7.976757715625
2. Total Rides per Year:
o Rides per day = 160
o Riders per ride = 45
o Total rides in a season = 160 rides/day × 130 days =
20,800 rides
o Total riders per season = 20,800 rides × 45 riders/ride
= 936,000 riders
3. Total Revenue per Year:
2 2024 - DUE 15 October 2024 ; 100% TRUSTED Complete,
trusted solutions and explanations.
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 evaluate the feasibility of the new log flume ride at the Port
Saint John Water Park, we'll perform a financial analysis
including the calculation of the initial outlay, annual after-tax
cash flows, terminal cash flow, NPV, IRR, and MIRR.
a. Initial Outlay, Annual After-Tax Cash Flow, and
Terminal Cash Flow
, 1. Initial Outlay
The initial outlay includes the cost of the equipment, installation
costs, and any other initial expenditures:
Initial Outlay=Equipment Cost+Installation Cost\text{Initial
Outlay} = \text{Equipment Cost} + \text{Installation Cost}
Initial Outlay=Equipment Cost+Installation Cost
=R900,000+R56,400=R956,400= R900,000 + R56,400 =
R956,400=R900,000+R56,400=R956,400
2. Annual Cash Flows Calculation
a. Revenue Calculation
1. Ticket Price per Rider:
o Year 1: R6.25
o Year 2: R6.25 × 1.05 = R6.5625
o Year 3: R6.5625 × 1.05 = R6.890625
o Year 4: R6.890625 × 1.05 = R7.23515625
o Year 5: R7.23515625 × 1.05 = R7.5969130625
o Year 6: R7.5969130625 × 1.05 = R7.976757715625
2. Total Rides per Year:
o Rides per day = 160
o Riders per ride = 45
o Total rides in a season = 160 rides/day × 130 days =
20,800 rides
o Total riders per season = 20,800 rides × 45 riders/ride
= 936,000 riders
3. Total Revenue per Year:
