Question: A movie theatre is considering the purchase of a new three-dimensional (3D) digital projection system. The new ticket price for a 3D movie will be $15 per person, which is $2.00 higher than for the conventional two-dimensional cellulose film projection system. The new 3D system will cost $50,000.
a. If the theatre expects to sell 20,000 tickets per year, how many years (as an integer) will it take for the theatre to recover the $50,000 investment in the new system (i.e., what is the simple payback period?)
b. What is the discounted payback period (as an integer) if the MARR is 20% per year?
c. If the 3D projection system has a life of 5 years and has a salvage value of $5,000 at that time, what is the IRR of the new system?