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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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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9952431

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