FIN3704 Assignment
5 (COMPLETE
ANSWERS) Semester 2
2024 - DUE 15 October
2024 ; 100% TRUSTED
Complete, trusted
solutions and
explanations.
ADMIN
[COMPANY NAME]
,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 investment in the new log flume ride at the Port
Saint John Water Park, we will follow these steps:
1. Calculate the initial outlay.
2. Calculate the annual after-tax cash flow for each year.
3. Calculate the terminal cash flow.
4. Calculate NPV, IRR, and MIRR.
, Given Data:
• Equipment Cost: R900,000
• Installation Cost: R56,400
• Total Initial Cost: R900,000 + R56,400 = R956,400
• Expected Life: 6 years
• MACRS Class Life: 7 years
• Daily Rides: 160
• Average Riders per Ride: 45
• Season Days: 130
• Ticket Price Year 1: R6.25
• Annual Ticket Price Increase: 5%
• Variable Cost per Rider: R1.75
• Total Annual Fixed Cost: R625,000
• Dismantling Cost: R354,000
• Salvage Value: R700,000
• Capital Cost (Discount Rate): 8.50%
• Marginal Tax Rate: 25%
Step A: Calculate Initial Outlay
Initial Outlay (Year 0):
Initial Outlay=Equipment Cost+Installation Cost=R900,000+R5
6,400=R956,400\text{Initial Outlay} = \text{Equipment Cost} +
\text{Installation Cost} = R900,000 + R56,400 =
R956,400Initial Outlay=Equipment Cost+Installation Cost=R90
0,000+R56,400=R956,400
Step B: Calculate Annual After-Tax Cash Flow
Revenue Calculation
