Principles of Accounting

1. Straightforward net-present-value and payback computationsSTL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along theMississippi River. The following information is available:Cost of boat $500,000Service life 10 summer seasonsDisposal value at the end of 10 seasons $100,000Capacity per trip 300 passengersFixed operating costs per season (including straight-line depreciation) $160,000Variable operating costs per trip $1,000Ticket price $5 per passengerAll operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.Instructions:By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments- round calculations to the nearest dollar.

INQUIRE / ASK any Question from OUR CUSTOMER SUPPORT online NOW via the CHAT>