Summertime Fun Limited (SFL) is evaluating the purchase of a new rocket roller coaster. The initial cost is $1 million with annual maintenance fees equal to 10% of the annual revenues. Annual revenues are expected to be $200,000. The ride should last for 10 years and must be purchased now to be ready for next year. Use a 7% discount rate.
Required:
Calculate the present value of future revenues and the present value of all costs to determine whether SFL should purchase this new ride.