Family Fun Park is evaluating the purchase of a new game to be located on its Mi

Question

Family Fun Park is evaluating the purchase of a new game to be located on its Midway. Family Fun has narrowed their choices down to two: the Wacky Water Race game and the Whack- A - Mole game. Financial data about the two choices follows Wacky Water Whack-A- Mole $15,000 Race Investment Useful life Estimated annual net cash inflows for 6 vears Residual value Depreciation methood Required rate of return $40,000 S5,000 $1,000 straight -line 10% 53,000 1,000 straight -line 12% What is the total present value of future cash inflows and residual value from the Whack - A Mole game? (The present value for this scenario is 0.507 and the OA. $11,826 B. $12.840 O C. $12,333 OD. $27,840

Explanation / Answer

Calculating Present value of cash inflows

Cash inflows
(A)

P.V /Annuity factor
(B)

P.v of cash flows
(C=A*B)

Estimated annual cash flows

$3,000

4.111

$12,333

Salvage value

$1,000

0.507

$507

P.v of cash inflows

$12,840

Ans

Option (B) $12,840 is correct

Calculating Present value of cash inflows

Cash inflows
(A)

P.V /Annuity factor
(B)

P.v of cash flows
(C=A*B)

Estimated annual cash flows

$3,000

4.111

$12,333

Salvage value

$1,000

0.507

$507

P.v of cash inflows

$12,840

Ans

Option (B) $12,840 is correct

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