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Question 791678: Can you help me with this? I calculated the first part, but I am struggling with this problem. If anyone can help me I would be so grateful!
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the extra capacity will be needed. (Assume that Deer Valley Lodge will sell all 300 lift tickets on those 40 days.) Running the new lift will cost $500 a day for the entire 200 days the lodge is open. Assume that the lift tickets at Deer Valley cost $55 a day. The new lift has an economic life of 20 years.
1.Assume that the before-tax required rate of return for Deer Valley is 14%. Compute the before-tax NPV of the new lift and advise the managers of Deer Valley about whether adding the lift will be a profitable investment. Show calculations to support your answer.
ACCT 310 Managerial Accounting
Unit 5 IP Template
Name: Gina Lawter
Deer Valley Lodge Ski Resort
Determine the total investment $2,000,000 + $1,300,000 = $3,300,000
for one (1) lift cost of a lift Prep & install Total investment
Calculate the annual cash inflow X X =
(anticipated inflow from the # of skiers Days used cost of lift ticket annual cash inflow
lift tickets based on total skiers) per day
Calculate the annual cash outflow X =
(projected outflow based on # days to Cost to run annual cash outflow
cost to run the lift) run lift per day
PV of cash flows @ 14% ( - ) X =
annual cash annual cash PV of an PV of cash
inflow outflow annuity of $1 flows @ ___%
NPV - =
PV of cash total NPV
flows @ ____% investment
Recommendation:
Answer by psbhowmick(878)   (Show Source):
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