PROBLEM 1:
The Heritage Amusement Park would like to construct a new ride called the Sonic Boom, which the park management feels would be very popular. The ride would cost $450,000 to construct, and it would have a 10% salvage value at the end of its 15-year useful life. The company estimates that the following annual costs and revenues would be associated with the ride: (Ignore income taxes.)
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Ticket revenues
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$
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250,000
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Less operating expenses:
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Maintenance
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$
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40,000
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Salaries
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90,000
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Depreciation
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27,000
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Insurance
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30,000
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Total operating expenses
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187,000
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Net operating income
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$
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63,000
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Compute the pay back period associated with the new ride.
PROBLEM 2:
Sharp Company has $15,000 to invest. The company is trying to decide between two alternative uses of the funds as follows:
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Invest in
Project A
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Invest in
Project B
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Investment required
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$
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15,000
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$
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15,000
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Annual cash inflows
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$
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4,000
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$
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0
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Single cash inflow at the end of 10 years
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$
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60,000
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Life of the project
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10 years
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10 years
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Sharp Company uses a 16% discount rate. (Ignore income taxes.)
Required:
a. Determine the net present value. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)
PROBLEM 3:
Wriston Company has $300,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are as follows:
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A
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B
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Cost of equipment required
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$
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300,000
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$
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0
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Working capital investment required
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$
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0
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$
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300,000
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Annual cash inflows
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$
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80,000
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$
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60,000
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Salvage value of equipment in seven years
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$
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20,000
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$
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0
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Life of the project
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7 years
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7 years
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The working capital needed for project B will be released for investment elsewhere at the end of seven years. Wriston Company uses a 20% discount rate. (Ignore income taxes.)
Required:
a. Calculate net present value for each project. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answers to the nearest whole dollar.)
PROBLEM 4:
On January 2, Fred Critchfield paid $18,000 for 900 shares of the common stock of Acme Company. Mr. Critchfield received an $0.80 per share dividend on the stock at the end of each year for four years. At the end of four years, he sold the stock for $22,500. Mr. Critchfield has a goal of earning a minimum return of 12% on all of his investments. (Ignore income taxes.)
Required:
a. Determine the net present value. (Negative amount should be indicated by a minus sign.Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)