Consider how Steinback Valley River Park Lodge could use capital budgeting to de

Question

Consider how Steinback Valley River Park Lodge could use capital budgeting to decide whether the $11,000,000 River Park Lodge expansion would be a good investment. Assume Steinback Valey's managers developed the following estimates concerning the expansion: EEB (Click the icon to view the estimates.) Assume that Steinback Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of S950,000 at the end of its ten-year life. The average annual net cash inflow from the expansion is expected to be $2,995,312. Compute the payback for the expansion project. Round to one decimal place Payback years Data Table 118 skiers Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Steinback Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable cost of serving each skier per day Cost of expansion Discount rate 152 days 10 years 246 79 11,000,000 10% Choos tion

Explanation / Answer

investment / annual cash inflow = Payback 11,000,000 /2,995,312 = 3.67 years

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