Question

Water World is considering purchasing a water park in Signal Mountain, Tennessee, for $ 1,850,000. The new facility will generate annual net cash inflows of $ 495,000 for nine years. Engineers estimate that the facility will remain useful for nine 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.

Requirements
1. Compute the payback period, the ARR, the NPV, and the approximate IRR of this investment. 2. Recommend whether the company should invest in this project.



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  • CreatedAugust 27, 2014
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