You are assessing the viability of operating an amusement park. The nominal revenues from ticket sales at the end of Year 1 will be $493649. They will increase by 4% per year in real terms. The only annual cost will be to lease the whole operation for $181856 per year. The leasing costs are nominal and will start at the end of Year 1. They will stay fixed in nominal terms.
Assume the inflation rate is 5% and the real discount rate is 10%. All cash flows occur at year-end. The company will not pay any taxes. The business will continue into perpetuity.
What is the NPV of the project?
a. $7701740
b. $5675563
c. $7026512
d. $7650709
e. $6662434