Question

Angola United Theaters, Inc. is considering opening a new movie theater in Angola, Indiana. The relevant cost of capital is 8%. The purchase, renovation, and modification of a downtown building would require an initial investment of $1.5 million. The theater is expected to be operational for 25 years. After 25 years, the property would be sold for $1 million. The annual operating cost is equal to $100,000 plus $2 per customer. The annual revenues are estimated at $15 per customer. Determine the minimum number of customers per year that would result in accepting the project. (Hint: use annualized worth and solve for the number of customers.)

Answer 1

Answer:

The minimum number of customers that result in accepting the project is 17,449

Explanation:

From the attached spreadsheet, we found the below :

(((13X -100000)*10.67478)+146017.9) =1500000

(13X-100000)*10.67478=-146017.9+1500000

(13X-100000)* 10.67478=1353982.1

13X-100000=1353982.1 /10.67478

13X=126839.3447 +100000

13X=226839.3447

X=226839.3447/13

X=17449.18