A municipality is seeking a new tourist attraction, and the town council has vot

Question

A municipality is seeking a new tourist attraction, and the town council has voted
to allocate $500,000 for the project. A survey shows that an interesting cave
can be enlarged and developed for a contract price of $400,000. It would have
an infinite life.
The estimated annual expenses of operation are:
Direct Labor $30,000
Maintenance 15,000
Electricity 5,000
The price per ticket is to be based upon an average of 1000 visitors per month. If
money is worth 8% indefinitely, what should be the price of each ticket?
5
Answer in dollars and cents, without dollar sign: X.XX
Include the decimal point

Explanation / Answer

If the $100,000 cash, left over after developing the cave, is invested at 8%, it will yield a
perpetual annual income of $8,000. This $8,000 can be used toward the (30,000+15,000+5,000)$50,000 a year of expenses.

The balance of the expenses can be raised through ticket sales, making the price per ticket:
Ticket price = $42,000/(12*1000) tickets = $3.50

Alternate solution:
PWCOST = PWBENEFIT
400,000 + (50,000)/.08 = 500,000 + T/.08
400,000 + 625,000 = 500,000 + T/.08
T = 525,000(.08)
= 42,000
Ticket Price = $42,000/12,000 tickets = $3.50

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