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FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024
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QUESTIONS WITH ANSWERS FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024
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[Company name]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
a. Initial Outlay, Annual After-tax Cash Flow, and Terminal Cash Flow (14
marks)
1. Initial Outlay:
The initial outlay includes the cost of the equipment and installation.
• Equipment cost = R900,000
• Installation cost = R56,400
Thus, the Initial Outlay = R900,000 + R56,400 = R956,400.
2. Revenue:
To calculate the total annual revenue, use the following formula:
Revenue per year=Total number of riders per year×Ticket price per rider\te
xt{Revenue per year} = \text{Total number of riders per year} \times
\text{Ticket price per
rider}Revenue per year=Total number of riders per year×Ticket price per rid
er
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