FIN3704 Assignment 5 (COMPLETE ANSWERS) Semester 2 2024 - DUE 15 October 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.. Ensure your success with us..
FIN3704 Assignment 5 (COMPLETE ANSWERS) Semester 2 2024 - DUE 15 October 2024
FIN3704 Assignment 5 (COMPLETE ANSWERS) Semester 2 2024 - DUE 15 October 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.
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Applied Financial Management
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,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 analyze the log flume ride project for the Port Saint John
Water Park, we'll calculate the initial outlay, annual after-tax
cash flows for each year, terminal cash flow, NPV, IRR, and
MIRR of the investment.
Part a: Initial Outlay, Annual After-Tax Cash Flow, and
Terminal Cash Flow
, 1. Initial Outlay
The initial outlay includes the purchase cost, installation cost,
and any additional costs necessary to get the equipment ready
for use.
• Equipment Cost: R900,000
• Installation Cost: R56,400
• Total Initial Outlay:
Total Initial Outlay=Equipment Cost+Installation Cost=R900,00
0+R56,400=R956,400\text{Total Initial Outlay} =
\text{Equipment Cost} + \text{Installation Cost} = R900,000 +
R56,400 =
R956,400Total Initial Outlay=Equipment Cost+Installation Cost
=R900,000+R56,400=R956,400
2. Annual Cash Flow Calculation
The annual cash flow can be calculated as follows:
1. Revenue Calculation:
o Daily Rides: 160 rides
o Average Riders per Ride: 45
o Total Riders per Day: 160×45=7,200160 \times 45 =
7,200160×45=7,200
o Ticket Price Year 1: R6.25
o Ticket Price Increase: 5% annually
The revenue for Year 1 is:
Revenue Year 1=Total Riders per Day×Ticket Price×Seaso
n Days\text{Revenue Year 1} = \text{Total Riders per
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