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& Chrome File Edit View History Bookmarks People Window Help A9 * 89% O E Tue 12:57 PM Q Q = x Xsens Sample Final XX Net Present Value Calculator X xXxLa Homework 3 x 15. Homework 4 ttps://ccle.ucla.edu/mod/quiz/attempt.php?attempt=2027943&page;=21 * 6 0 9 : Shared System Need Help CHAN, CHING YI hapter 7 Screen Shot 2018-03... 7.00 PM Winter 2016 - Finals week DA-2/ Final / Final Control Panel examples Question 22 ch6 examples (1) water.xlsx Not yet answered Points out of 1.00 You are assessing the viability of operating an amusement park. The nominal revenues from ticket sales at the end of Year 1 will be $539852. They will increase by 4% per year in real terms. The only annual cost will be to lease the whole operation for $183990 per year. The leasing costs are nominal and will start at the end of Year 1. They will stay fixed in nominal terms. Assume the inflation rate is 5% and the real discount rate is 10%. All cash flows occur at year-end. The company will not pay any taxes. The business will continue into perpetuity. What is the NPV of the project? P Flag question hapter 6 ch7 examples (1) water.xlsx Select one: Oa. $6302812 Ob. $7750422 Oc $8473959 Od. $8462817 time MBA MGMT 130A S...chart.pdf finalfinal one qswl Ce. $7382047 con150 MGMT 130A qnmb.docx ment 2.docx Previous page Next page ch 8 examples (2) water Chapter 8 150 Current As...nt (final) Contact About Privacy Copyright UCLA links | UCLA Registrar MyUCLA Disability Couns/PsychSvc (CAPS) 900 9 000 1 ks 1 ESO A SPOOCW POX OLE a A ? ? ? R EDEN.BEExplanation / Answer
Nominal discount rate = (1+ Real discount rate) * (1+ Inflation rate) - 1 = 1.10*1.05 - 1 = 15.5%
Nominal revenue increase rate in real terms = 4%
Nominal revenue increase rate in nominal terms = 1.04*1.05 - 1 = 9.2%
Yearly nominal revenue = 539,852
Present Value of nominal revenue = 539852 * ( v + 1.092*v^2 +1.092*v^3......) where v = 1/(1+0.155) = 0.8658
Using Geometric progression,
( v + 1.092*v^2 +1.092*v^3......) = v / (1 - 1.092v) = 0.8658 / (1 - 1.092*0.8658) = 15.873
Present Value of nominal revenue = 539852 * 15.873 = 8,569,079
Present Value of nominal lease = 183990 * ( v + v^2 +v^3......) where v = 1/(1+0.155) = 0.8658
Using Geometric progression,
( v + v^2 +v^3......) = v / (1 - v) = 0.8658 / (1 - 0.8658) = 6.4516
Present Value of nominal revenue = 183990 * 6.4516 = 1,187,032
Net Present Value = 8,569,079 - 1,187,032 = 7,382,047
Option e is correct.
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