Dandy\'s Fun Park is evaluating the purchase of a new game to be located on its

Question

Dandy's Fun Park is evaluating the purchase of a new game to be located on its Midway. Dandys 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 Race Whack-A- Mole $26,000 $27,000 Useful life Estimated annual net cash inflows for 8 years Residual value Depreciation method Required rate of return $9,000 $2,000 straight-line 10% $7,000 $4,000 straight line 12% Using the net present value model, which alternative(s) should Family Fun Park select? O A. The Whack-A-Mole game should be selected. O B. Neither investment should be selected. ° C. Both investments should be selected. D. The Wacky Water Race game should be selected.

Explanation / Answer

Answer is C Both investment should be selected as both have postive NPV

Wacky Water Race Cash flow Period PV factor 10% PV Investment -26000 0 1 -26000 Annual cash Flow 9000    1-8 5.33493 48014 Residual value 2000 8 0.466507 250 NPV 22014

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