Answer:
Step 1: Calculate annual cash flows for each year
Annual Revenue (Revenue per park x Number of parks)
= $70,000 x 3
= $210,000 per year
Annual Operating Cost
= Fixed Costs + Variable Costs
= $10,000 + $70,000 x 3
= $10,000 + $210,000
= $220,000 per year
Annual Depreciation Expense
= Equipment Cost / Useful Life
= $52,000 / 2
= $26,000 per year
Net Annual Cash Flow
= Annual Revenue - (Annual Operating Cost + Annual Depreciation Expense)
= $210,000 - ($220,000 + $26,000)
= $210,000 - $246,000
= -$36,000 per year
Step 2: Calculate the present value of cash flows for each year using the required rate of return (10%)
PV of Year 1 Cash Flow
= Net Annual Cash Flow / (1 + r)^t
= -$36,000 / (1 + 0.10)^1
= -$36,000 / 1.10
= -$32,727.27 (rounded to 2 decimal places)
PV of Year 2 Cash Flow (considering salvage value)
= (Net Annual Cash Flow + Salvage Value) / (1 + r)^t
= (-$36,000 + $34,000) / (1 + 0.10)^2
= -$2,000 / 1.21
= -$1,652.89 (rounded to 2 decimal places)
Step 3: Calculate the total present value of the project
Total Present Value
= PV of Year 1 Cash Flow + PV of Year 2 Cash Flow
= -$32,727.27 + -$1,652.89
= -$34,380.16 (rounded to 2 decimal places)
Step 4: Calculate the minimum bid per amusement park
Number of Amusement Parks = 3 parks per year for 2 years = 6 parks in total
Minimum Bid Per Amusement Park
= Total Present Value / Number of Amusement Parks
= -$34,380.16 / 6
= -$5,730.03 (rounded to 2 decimal places)
Since bids can't be negative, we'll consider the positive value:
Minimum Bid Per Amusement Park ≈ $5,730
Therefore, the minimal amount you should bid per amusement park (rounded to the nearest $500) is $5,500. So, the correct answer is not listed among the options provided.