Tidal Wave is considering purchasing a water park in Fort Worth, Texas, for $2,100,000. The new facility will generate annual net cash inflows of $495,000 for ten years. Engineers estimate that the facility will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 12% or more. Management uses a 10% hurdle rate on investments of this nature. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) Read the requirements. (Click the icon to view the present value table.) (Click the icon to view the future value table.) Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period (in years) is (Round the percentage to the nearest tenth percent.) The ARR (accounting rate of return) is %. (Round your answer to the nearest whole dollar.) Net present value The IRR (internal rate of return) is between Requirement 2. Recommend whether the company should invest in this project. Recommendation: e
Tidal Wave is considering purchasing a water park in Fort Worth, Texas, for $2,100,000. The new facility will generate annual net cash inflows of $495,000 for ten years. Engineers estimate that the facility will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 12% or more. Management uses a 10% hurdle rate on investments of this nature. (Click the icon to view the present value annuity table.) (Click the icon to view the future value annuity table.) Read the requirements. (Click the icon to view the present value table.) (Click the icon to view the future value table.) Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown in the tables.) (Round the payback period to one decimal place.) The payback period (in years) is (Round the percentage to the nearest tenth percent.) The ARR (accounting rate of return) is %. (Round your answer to the nearest whole dollar.) Net present value The IRR (internal rate of return) is between Requirement 2. Recommend whether the company should invest in this project. Recommendation: e
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:Tidal Wave is considering purchasing a water park in Fort Worth, Texas, for $2,100,000. The new facility will generate annual net cash inflows of $495,000 for ten years. Engineers estimate that the
facility will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 12% or more.
Management uses a 10% hurdle rate on investments of this nature.
(Click the icon to view the present value annuity table.)
(Click the icon to view the future value annuity table.)
Read the requirements.
(Click the icon to view the present value table.)
(Click the icon to view the future value table.)
Requirement 1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. (If you use the tables to compute the IRR, answer with the closest interest rate shown
in the tables.) (Round the payback period to one decimal place.)
The payback period (in years) is
(Round the percentage to the nearest tenth percent.)
The ARR (accounting rate of return) is
%.
(Round your answer to the nearest whole dollar.)
Net present value
The IRR (internal rate of return) is between
Requirement 2. Recommend whether the company should invest in this project.
Recommendation:
e
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