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The management of an amusement park is considering purchasing a new ride for $40,000 that would have a useful life of 10 years and a salvage value of $5,000. The ride would require annual operating costs of $21,000 throughout its useful life. The company’s discount rate is 13%. Management is unsure about how much additional ticket revenue the new ride would generate particularly since customers pay a flat fee when they enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract new customers.
Required: How much additional revenue would the ride have to generate per year to make it an attractive investment (prove it)?