Asked by Claudia Holton on Jun 25, 2024
Verified
The management of an amusement park is considering purchasing a new ride for $82,000 that would have a useful life of 10 years and a salvage value of $10,200. The ride would require annual operating costs of $33,000 throughout its useful life. The company's discount rate is 9%. Management is unsure about how much additional ticket revenue the new ride would generate-particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract new customers. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:How much additional revenue would the ride have to generate per year to make it an attractive investment? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
Salvage Value
The anticipated salvage valuation of an asset upon the completion of its effective duration.
Operating Costs
The expenses associated with the day-to-day functions of a business, including costs for rent, utilities, maintenance, and administration.
Discount Rate
The interest rate used to discount future cash flows to their present values, reflecting the opportunity cost of capital.
- Assess the annual reductions in expenses and identify the revenue needed to justify an investment.
Verified Answer
BG
Breanna GutierrezJun 28, 2024
Final Answer : ![{{[a(7)]:#,###.000}}X − ${{[a(11)]:#,###}} > 0{{[a(7)]:#,###.000}}X > ${{[a(11)]:#,###}}X > ${{[a(11)]:#,###}} ÷ {{[a(7)]:#,###.000}} = ${{[a(12)]:#,###}} (rounded)](https://d2lvgg3v3hfg70.cloudfront.net/TB8314/11eb6b8f_62ba_8bfe_bf83_755f0d225609_TB8314_00.jpg)
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Learning Objectives
- Assess the annual reductions in expenses and identify the revenue needed to justify an investment.