(Answered) You are assessing the viability of operating an amusement

Finance

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

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