As you identified, one of the issues that the zoo must consider is the
financial impact of the acquisition. Calculate whether the acquisition is
financially viable.

Background
Provide the following information if requested:
Currently, 600,000 people visit the zoo each year. Half are adults, half are
children.
Admission is currently $15 for adults, $10 for children
Other zoos have acquired pandas, and have seen increases in overall
attendance at the zoo. San Diego, for example, saw a 12% increase in the
first year, an increase which it maintained into the future.
Costs of acquiring the panda are as follows:
• Consultants fees already incurred to identify available pandas in other
zoos and to advise on transportation requirements of $200,000
• Acquisition fee of $590,000 payable immediately
• Costs of building new enclosure is $1,475,000 payable immediately
• Transportation costs of $335,000 payable immediately
• Annual panda expenditure and maintenance on the enclosure is
$300,000 paid at the end of each year
Applicable discount rate = 20%
Assume the gain experienced in the first year will be maintained in
perpetuity. For simplicity, ignore any capital maintenance or growth.

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