Exam (elaborations)
FIN3704 Assignment 5 (COMPLETE ANSWERS) Semester 2 2024 - DUE 15 October 2024
- Course
- Applied Financial Management
- Institution
- University Of South Africa
TRUSTED WORKINGS, EXPLANATION AND SOLUTION
[Show more]
1 review
By: troutanitashia12 • 2 months ago
Content preview
FIN3704 Assignment 5 (COMPLETEANSWERS) Semester 2 2024 - DUE 15
October 2024
, FIN3704 Assignment 5 (COMPLETE ANSWERS)
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: Calculate the Initial Outlay, Annual After-Tax Cash Flows, and
Terminal Cash Flow
1. Initial Outlay
The initial outlay consists of the equipment cost and installation cost:
Equipment cost: R900,000
Installation cost: R56,400
Total Initial Outlay = R900,000 + R56,400 = R956,400
2. Annual After-Tax Cash Flow (Years 1 to 6)
The steps to calculate the annual after-tax cash flow are as follows:
Revenue Calculation:
Rides per year = 160 rides/day × 45 riders/ride × 130 days = 936,000 riders/year
Ticket price per rider increases by 5% annually starting from R6.25.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Bright001. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R48,05. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
52355 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now