The Astro World amusement park has the opportunity to expand its size now (the e

Question

The Astro World amusement park has the opportunity to expand its size now (the end of year 0) by purchasing adjacent property for $275,000 and adding attractions at a cost of $575,000. This expansion is expected to increase attendance by 30 percent over projected attendance without expansion. The price of admission is $35, with a $5 increase planned for the beginning of year 3. Additional operating costs are expected to be $100,000 per year. Estimated attendance for the next five years, without expansion, is as follows: Year Attendance 4 31.000 35,0003030.500 36,750 38,500 42,000 a. What are the pretax combined cash flows for years 0 through 5 that are attributable to the park's expansion? The cash flows attributable to the park's expansion in year 0 are $ 850000. (Enter your response as an integer.) The cash flows attributable to the park's expansion in year 1 are $(Enter your response as an integer.)

Explanation / Answer

Cash flows in year 0 = -$850,000

Cash flows in year 1 = $1,310,500

Year 1 2 3 4 5 Attendance 31000 35000 36750 38500 42000 Attendance with expansion 30% 40300 45500 47,775 50,050 54,600 Admission fee per person 35 35 40 40 40 Total admission revenue 1,410,500 1,592,500 1,911,000 2,002,000 2,184,000

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