Calculation of the Net Present Value for Wonderland
The Net Present Value and its various components are based on the given facts and figures:
* Wonderland has just spent £400,000 on market research into the theme park, and is encouraged by the findings.
* The theme park is expected to attract an average of 20,000 visitors per day for at least five years
* The price of admission to the theme park is expected to be £25 per adult and £15 per child. 70% of visitors are forecast to be children. In addition to admission revenues, it is expected that the average visitor will spend £10 on food and drinks, (of which 40% is contribution, and £7 on gifts and souvenirs, (of which 45% is contribution).
* All costs and receipts (excluding maintenance and construction costs and the realisable value) are shown at current prices; the company expects all costs and receipts to rise by 5% per year from current on a compound bases.
* The theme park would cost a total of £500 million and could be constructed and working after 1 year of investment (I.e. revenue will start in year 2). Half of the £500 million would be payable immediately, and half in one year’s time. In addition working capital of £60 million will be required from the beginning of the project.
* The non-current asset has an after tax realisable value between £100 million and £200 million after five years of the project.
* Operation costs (excluding labour (please see below) are expected to be £17 million in the first year of operation, increasing by £5 million per year.
* Insurance costs per annum are £3 million, of which £2 million per year is due directly to the theme park project.
* Insurance and labour cost will be increased in line with the Consumer price i.e. 5% per annum compounded annually
* The project would require 1000 employees with a cost of £35 million per annum (at current prices). The dual use of existing advertising campaigns...