Question

An inner city amateur theatre company, Theatre Empire, is planning on performing a new take on two Shakespearean plays, Hamlet and Macbeth, at an old Sydney theatre in the inner-suburb of South Bank. The producers of the theatre plan on alternating the performances of the two plays for a combined total of 40 weeks, if possible. Given the size of the theatre and the expected seat-sales rate, the producers think they can gross $420 000 at the box office. The plays will cost $48 000 to mount in the first place to cover costs of new seats, costumes and props, and the weekly running costs are expected to be $5500. Assume for the NPV calculations that all funds are earned and paid, except the mounting costs, at the end of the 40 weeks. The sets, costumes and props are expected to realise $26 500 at the end of the run.

A, Calculate ARR

B, What is the NPV if the producers can earn 12 per cent elsewhere on their funds?

Answer 1