Consider how White Valley Brook Park Lodge could use(Click the icon to view Pres

Question

Consider how White Valley Brook Park Lodge could use(Click the icon to view Present Value of $1 table,) capital budgeting to decide whether the $12,000,000 Brook Park Lodge expansion would be a good investment. Assume White Valley's managers developed the following estimates concerning the expansion: EE (Click the icon to view the estimates.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) What is the project's NPV (round to nearest dollar)? Is the investment attractive? Why or why not? (Click the icon to view additional information.) Calculate the net present value of the expansion. (Enter the factor to three decimal places, X.XXX. Round your calculations to the nearest whole dollar.) Net Cash Inflow Annuity PV Factor (1-8%, n-8) PV Factor Present Years 1-8 0 (i=8%, n=8) Value Present value of annuity Initial investment Net present value of expansion When the residual value is zero, the expansion is V project because its NPV is More Info Assume that White Valley uses the straight-line depreciation method and expects the lodge expansion to have no residual value at the end of its eight-year life. The project's average annual net cash inflow per year is expected to be $2,905,936.

Explanation / Answer

Net Present Value for the project is as calculated below:

When the residual value is zero the expansion is accepted as the NPV is positive.

Years Net cash Inflow Annuity PV factor (i=8%, n=8) PV factor (i=8%, n=8) Present Value 1-8 Present Value of annuity 29,05,936 5.7466 1,66,99,252 0 Initial investment 1,20,00,000 Net present value of the expansion 46,99,252

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