,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 Question 1 (10
Marks) Given the following set of cash flows: Period Cash Flow 1
45 000 2 40 000 3 35 000 4 30 000 5 25 000 (2) a. If your
required rate of return is 9% per year, calculate BOTH the
present and future value of the above stream of cash flows? b.
Now, suppose that you are offered another investment that is
identical, except that the cash flows are reversed (i.e., cash flow
1 is 20 000, cash flow 2 is 30 000, cash flow 3 is 35 000, cash
, flow 4 is 40 000 and cash flow 5 is 45 000). Is this worth more or
less than the original investment? Why? (4) c. If you paid R1000
000 for the original investment, what average annual rate of
return would you earn? What return would you earn on the
reversed cash flow? Use the IRR function. (2) d. Still assuming
that your required return is 8%, would you be willing to
purchase either of these investments? Explain why or why not. (
To tackle the problem of the Port Saint John Water Park's new
log flume ride and the cash flow analysis, we'll break it down
into two parts: calculating the initial outlay, annual after-tax
cash flows, terminal cash flow, and finally the NPV, IRR, and
MIRR for the ride. For the second part, we’ll calculate the
present and future value of a given cash flow stream and
analyze the reversed cash flow scenario.
Part 1: Log Flume Ride Analysis
a. Initial Outlay, Annual After-Tax Cash Flow, and Terminal Cash
Flow
1. Initial Outlay:
o Equipment Cost = R900,000
o Installation Cost = R56,400
o Total Initial Outlay = Equipment Cost + Installation
Cost
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 Question 1 (10
Marks) Given the following set of cash flows: Period Cash Flow 1
45 000 2 40 000 3 35 000 4 30 000 5 25 000 (2) a. If your
required rate of return is 9% per year, calculate BOTH the
present and future value of the above stream of cash flows? b.
Now, suppose that you are offered another investment that is
identical, except that the cash flows are reversed (i.e., cash flow
1 is 20 000, cash flow 2 is 30 000, cash flow 3 is 35 000, cash
, flow 4 is 40 000 and cash flow 5 is 45 000). Is this worth more or
less than the original investment? Why? (4) c. If you paid R1000
000 for the original investment, what average annual rate of
return would you earn? What return would you earn on the
reversed cash flow? Use the IRR function. (2) d. Still assuming
that your required return is 8%, would you be willing to
purchase either of these investments? Explain why or why not. (
To tackle the problem of the Port Saint John Water Park's new
log flume ride and the cash flow analysis, we'll break it down
into two parts: calculating the initial outlay, annual after-tax
cash flows, terminal cash flow, and finally the NPV, IRR, and
MIRR for the ride. For the second part, we’ll calculate the
present and future value of a given cash flow stream and
analyze the reversed cash flow scenario.
Part 1: Log Flume Ride Analysis
a. Initial Outlay, Annual After-Tax Cash Flow, and Terminal Cash
Flow
1. Initial Outlay:
o Equipment Cost = R900,000
o Installation Cost = R56,400
o Total Initial Outlay = Equipment Cost + Installation
Cost
