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)
