(Ignore Income Taxes in This Problem

question 36

Essay

(Ignore income taxes in this problem.) The management of an amusement park is considering purchasing a new ride for $400,000 that would have a useful life of 5 years and a salvage value of $40,000. The ride would require annual operating costs of $190,000 throughout its useful life. The company's discount rate is 12%. Management is unsure about how much additional ticket revenue the new ride would generate-particularly because 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:

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing to supply.

Economic Profits

The difference between total revenue and total costs, including both explicit and implicit costs, representing the excess returns over the firm's opportunity costs.

Total Profit

The financial gain obtained when total revenue exceeds total expenses from business operations.

Graph

A diagram representing data visually, using lines, bars, or other symbols.