Dandy\'s Fun Park is evaluating the purchase of a new game to be located on its
ID: 2402788 • Letter: D
Question
Dandy's Fun Park is evaluating the purchase of a new game to be located on its Midway.? Dandy's has narrowed their choices down to? two: the Wacky Water Race game and the
Whackminus?Aminus?Mole
game. Financial data about the two choices follows.
Wacky Water
Race
Whackminus?Aminus?
Mole
Investment
?$28,000
?$27,000
Useful life
5
5
Estimated annual net cash inflows for 5 years
?$10,000
?$3,000
Residual value
?$2,000
?$5,000
Depreciation method
straightminus?line
straightminus?line
Required rate of return
?8%
?10%
What is the total present value of future cash inflows and residual value from the
Whackminus?Aminus?Mole
?game?
Wacky Water
Race
Whackminus?Aminus?
Mole
Investment
?$28,000
?$27,000
Useful life
5
5
Estimated annual net cash inflows for 5 years
?$10,000
?$3,000
Residual value
?$2,000
?$5,000
Depreciation method
straightminus?line
straightminus?line
Required rate of return
?8%
?10%
Explanation / Answer
Statement showing Cash flows Wacky WaterRace Particulars Time PVf 8% Amount PV Cash inflows 1.00 0.9259 10,000.00 9,259.26 Cash inflows 2.00 0.8573 10,000.00 8,573.39 Cash inflows 3.00 0.7938 10,000.00 7,938.32 Cash inflows 4.00 0.7350 10,000.00 7,350.30 Cash inflows 5.00 0.6806 10,000.00 6,805.83 Cash inflows 5.00 0.6806 2,000.00 1,361.17 present value of future cash inflows and residual value 41,288.27 Statement showing Cash flows Whackminus?Aminus?Mole Particulars Time PVf 10% Amount PV Cash inflows 1.00 0.9091 3,000.00 2,727.27 Cash inflows 2.00 0.8264 3,000.00 2,479.34 Cash inflows 3.00 0.7513 3,000.00 2,253.94 Cash inflows 4.00 0.6830 3,000.00 2,049.04 Cash inflows 5.00 0.6209 3,000.00 1,862.76 Cash inflows 5.00 0.6209 5,000.00 3,104.61 present value of future cash inflows and residual value 14,476.97
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