Consider how Smith Valley Waterfall Park Lodge could use capital budgeting to de

Question

Consider how Smith Valley Waterfall Park Lodge could use capital budgeting to decide whether the $13,000,000 Waterfal Park Lodge expansion would be a good investment Assume Smith Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) Assume that Smith Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $500,000 at the end of its ten-year life. The average annual net cash inflow from the expansion is expected to be $2,948,496. Compute the payback for the expansion project. Round to one decimal place. Amount invested Expected annual net cash infow Payback Data Table Number of additional skiers per day Average number of days per year that weather conditions 122 skiens allow skiing at Smith 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 248 87 13,000,000 8% $ choose fro acBook Pro Dll bo ag delete 8 9 0 7

Explanation / Answer

ans) Pay back for the expansion project

Pay back period = Amount invested / Expected annual net cash inflow

Amount invested = 13,000,000

Computation of average annual net cash inflow from the expansion

Average cash received from each skier per day $246

Average variable cost of serving each skier per day (87)

Average net cash inflow per skier per day 159

Number of additional skiers per day 122

Average net cash inflow per day (159 X 122) 19398

Number of ski days per year 152

Average annual net cash inflow per year (19398 X 152) 2948496

Pay back period = 13,000,000 / 2948496

= 4.4 years

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.