The theme park in Florida that is considering two designs for a new ride called the Scream Machine. The first design alternative (A) requires a $300,000 investment and will produce net annual after-tax revenue of $55,000 over the 10-year planning horizon; the second alternative (B) requires a $450,000 investment and will produce net annual after-tax revenue of $80,000 annually. Both alternatives are expected to have negligible salvage values after the 10-year planning horizon. Based on a 10% MARR and an IRR comparison, which design (if either) should be chosen?
The theme park in Florida that is considering two designs for a new ride called the Scream Machine. The first design alternative (A) requires a $300,000 investment and will produce net annual after-tax revenue of $55,000 over the 10-year planning horizon; the second alternative (B) requires a $450,000 investment and will produce net annual after-tax revenue of $80,000 annually. Both alternatives are expected to have negligible salvage values after the 10-year planning horizon. Based on a 10% MARR and an IRR comparison, which design (if either) should be chosen?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The theme park in Florida that is considering two designs for a new ride called the Scream Machine. The first design alternative (A) requires a $300,000 investment and will produce net annual after-tax revenue of $55,000 over the 10-year planning horizon; the second alternative (B) requires a $450,000 investment and will produce net annual after-tax revenue of $80,000 annually. Both alternatives are expected to have negligible salvage values after the 10-year planning horizon. Based on a 10% MARR and an IRR comparison, which design (if either) should be chosen?
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