Over the past six months, Six Flags conducted a marketing study on improving their park experience. The study cost $3.00
Posted: Tue Nov 23, 2021 8:52 am
Over the past six months, Six Flags conducted a marketing study
on improving their park experience. The study cost $3.00 million
and the results suggested that Six Flags add a kid's only roller
coaster.
Suppose that Six Flags decides to build a new roller coaster for
the upcoming operating season. The depreciable equipment for the
roller coaster will cost $50.00 million and an additional $5.00
million to install. The equipment will be depreciated straight-line
over 20 years.
The marketing team at Six Flags expects the coaster to increase
attendance at the park by 5%. This translates to 102,522.00 more
visitors at an average ticket price of $40.00. Expenses for these
visitors are about 11.00% of sales.
There is no impact on working capital. The average visitor
spends $22.00 on park merchandise and concessions. The after-tax
operating margin on these side effects is 29.00%. The tax rate
facing the firm is 35.00%, while the cost of capital is 10.00%.
What is the NPV of this coaster project if Six Flags will
evaluate it over a 20-year period? (Six Flags expects the first
year project cash flow to grow at 5% per year, going forward)
(Express answer in millions)
Answer format: Currency: Round to: 2
decimal places.
on improving their park experience. The study cost $3.00 million
and the results suggested that Six Flags add a kid's only roller
coaster.
Suppose that Six Flags decides to build a new roller coaster for
the upcoming operating season. The depreciable equipment for the
roller coaster will cost $50.00 million and an additional $5.00
million to install. The equipment will be depreciated straight-line
over 20 years.
The marketing team at Six Flags expects the coaster to increase
attendance at the park by 5%. This translates to 102,522.00 more
visitors at an average ticket price of $40.00. Expenses for these
visitors are about 11.00% of sales.
There is no impact on working capital. The average visitor
spends $22.00 on park merchandise and concessions. The after-tax
operating margin on these side effects is 29.00%. The tax rate
facing the firm is 35.00%, while the cost of capital is 10.00%.
What is the NPV of this coaster project if Six Flags will
evaluate it over a 20-year period? (Six Flags expects the first
year project cash flow to grow at 5% per year, going forward)
(Express answer in millions)
Answer format: Currency: Round to: 2
decimal places.