# 1. A theater owner is considering the installation of an air conditioning system which he believed will increase the number of theater goers by an average of l100 persons a day. The average price of ticket per person is P80.00 and the theater is in operation 360 days each year. The aircon system installation will cost P600,000.00 and it is estimated that maintenance cost is P12,000.00 per year. Based on the performance of similar systems, the daily operation cost will be P 2000.00 and the estimated life is 10 years. Taxes and insurance would be 3.5% of the first cost. For depreciation, assume that money can be invested at 12% compounded annually. If the theater is now earning a profit of 15% on its investment, would you recommend the installation of the new system? Use the rate of return method.

# 1. A theater owner is considering the installation of an air conditioning system which he believed will increase the number of theater goers by an average of l100 persons a day. The average price of ticket per person is P80.00 and the theater is in operation 360 days each year. The aircon system installation will cost P600,000.00 and it is estimated that maintenance cost is P12,000.00 per year. Based on the performance of similar systems, the daily operation cost will be P 2000.00 and the estimated life is 10 years. Taxes and insurance would be 3.5% of the first cost. For depreciation, assume that money can be invested at 12% compounded annually. If the theater is now earning a profit of 15% on its investment, would you recommend the installation of the new system? Use the rate of return method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 13P

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