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 Whack- Wacky Water Race A- Mole $15,000 Investment Useful life Estimated annual net cash inflows for 7 Residual value $26,000 $9,000 2,000 straight-line 3% 57,000 51,000 straight-line 10% years Depreciation method Required rate of return What is the total present value of future cash inflows and residual value from the Wacky Water Race game? (The present value for this scenario is 0.583 and the $48,020 $34,589 $22.020 $45.688 OA. B. OC. OD,

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

$9,000

5.206

$46,854

Salvage value

$2,000

0.583

$1,166

P.v of cash inflows

$48,020

Ans

Option (A) $48,020 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

$9,000

5.206

$46,854

Salvage value

$2,000

0.583

$1,166

P.v of cash inflows

$48,020

Ans

Option (A) $48,020 is correct

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