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Investment | Accounting homework help

Family Fun Park is evaluating the purchase of a new game to be located on its Midway. Family Fun has narrowed its choices down to two; the Wacky Water Race game and the Whack-A-Mole game. Financial data about the two choices follow:

Wacky Water Race Whack-A-Mole
Investment $32,000 $22,000
Useful Life 5 5
Estimated annual net cash inflows for 5 years $8,000 $6,000
Residual Value $2,000 $1,000
Depreciation method Straight-line Straight-line
Required rate of return 8% 10%

What is the total present value of future cash inflows and residual value from the Whack-A-Mole game?

A. $22,746

B. $23,367

C. $24,579

D. $45,367


A manager is considering the following investment:

Initial capital investment $180,000
Estimated useful life 3 years
Estimated disposal value in 3 years 0
Estimated annual savings in cash operating costs $80,000
Minimum desired rate of return 10%
Present value of an ordinary annuity, 3 periods at 10% 2.4869
Present value of one, 3 periods at 10% 0.7513

Assume straight-line depreciation is used. Ignore income taxes. The net present value of the investment is:

A) $18,952

B) $60,000

C) $198,952

D) $(123,652)

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