[Date]
FIN3704 Assignment
5 Semester 2 2024 -
DUE 15 October
2024
QUESTIONS WITH COMPLETE 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
(a) Initial outlay, annual after-tax cash flows, and terminal cash flow
1. Initial outlay
• Purchase cost: R900,000
• Installation cost: R56,400
Total initial outlay = R900,000 + R56,400 = R956,400
2. Depreciation using MACRS (Modified Accelerated Cost Recovery System)
FIN3704 Assignment
5 Semester 2 2024 -
DUE 15 October
2024
QUESTIONS WITH COMPLETE 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
(a) Initial outlay, annual after-tax cash flows, and terminal cash flow
1. Initial outlay
• Purchase cost: R900,000
• Installation cost: R56,400
Total initial outlay = R900,000 + R56,400 = R956,400
2. Depreciation using MACRS (Modified Accelerated Cost Recovery System)
