The management of an amusement park is considering the purchase of a new ride fo
ID: 2372618 • Letter: T
Question
The management of an amusement park is considering the purchase of a new ride for 40,000 that would have a Useful life of 10 years and a salvage value of 4000. The ride would require annual operating costs of 19000 throughout its useful life. The companys discount rate is 8%. Management is unsure about how much additional ticket the new ride would generate specifically because 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.
How much additional revenue would the ride have to generate per year to make it an attractive investment?
Explanation / Answer
(0.92x4000) + (19000x10) - 4000 = 189680
per year = 189680/10 = 18968
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