Exam (elaborations)
FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024
- Institution
- University Of South Africa (Unisa)
FIN3704 Assignment 5 Semester 2 2024 - DUE 15 October 2024 QUESTIONS WITH DETAILED ANSWERS
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FIN3704 Assignment 5Semester 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
Part A: Initial Outlay, Annual After-Tax Cash Flow, and Terminal Cash
Flow
1. Initial Outlay: The initial outlay is the total cost of purchasing and
installing the log flume ride.
Initial Outlay=Purchase Cost+Installation Cost\text{Initial Outlay} =
\text{Purchase Cost} + \text{Installation
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