(Ignore Income Taxes in This Problem

question 137

Essay

(Ignore income taxes in this problem.)The management of an amusement park is considering purchasing a new ride for $80,000 that would have a useful life of 10 years and a salvage value of $10,000.The ride would require annual operating costs of $32,000 throughout its useful life.The company's discount rate is 9%.Management is unsure about how much additional ticket revenue the new ride would generate-particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides.Hopefully,the presence of the ride would attract new customers.
Required:
How much additional revenue would the ride have to generate per year to make it an attractive investment?

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Definitions:

Drawer

The party that writes and signs a negotiable instrument, such as a check, instructing a drawee (often a bank) to pay a specified sum to a payee.

Draft

A preliminary version of a document, plan, or proposal that is subject to revision and refinement.

Order

A binding decision rendered by a judge.

Joint Payees

People who are collectively named to receive payment or performance as stipulated in a contract or agreement.