A theater in Davao City is considering the installation of an air-conditioning system which is believed will increase attendance by an average of 100 persons a day. The average charge per person is ?8.00, and the theater is in operation 360 days each year. The system would cost ?600,000.00 if installed and it is estimated that the average maintenance cost would be ?12,000 per year. Based on the performance systems, the daily operation cost would be ?200 and the estimated life is 10 years. Taxes and insurance would be 3.5% of the first cost. For the depreciation, assume that money can be invested at 12% compounded annually. If the theater is now making a profit of 15% on its investment, would you recommend the installation of the system?

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Current Profit on investment 15 Required return 15 In... View the full answer