Question

The Astro World amusement park has the opportunity to expand its size nowâ (the end of yearâ 0) by purchasing adjacent property for â$ and adding attractions at a cost of â$. This expansion is expected to increase attendance by percent over projected attendance without expansion. The price of admission is â$â, with aâ $5 increase planned for the beginning of year 3. Additional operating costs are expected to beâ $100,000 per year. Estimated attendance for the next fiveâ years, without expansionâ, is asâ follows:

Year 1 2 3 4 5
Attendance 31,000 35,000 36,750 38,500 42,000

a. The cash flows attributable to theâ park's expansion in year 1 are:_______
b. The cash flows attributable to theâ park's expansion in year 2 are:_______
c. The cash flows attributable to theâ park's expansion in year 3 are:_______
d. The cash flows attributable to theâ park's expansion in year 4 are:_______
e. The cash flows attributable to theâ park's expansion in year 5 are:_______

Answer 1

Percent increase as a result of expansion = 30%

Price of admission = $35

Cashflow attributable to the park's expansion = Estimated attendance without expansion * percent increase as a result of expansion * admission fee - additional operating costs per year.

Year 1

= 31,000 * 30% * 35 - 100,000

= $225,500

Year 2

= 35,000 * 30% * 35 - 100,000

= $267,500

Year 3

= 36,750 * 30% * 40 - 100,000

= $341,000

Year 4

= 38,500 * 30% * 40 - 100,000

= $362,000

Year 5

= 42,000 * 30% * 40 - 100,000

= $404,000