The management of an amusement park is considering purchasing a new
ride for $56,000 that would have a useful life of 8 years and a salvage
value of $7,000. The ride would require annual operating costs of
$27,000 throughout its useful life. The company\'s discount rate is 10%.
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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