Consider how Bear Valley, a popular ski resort, could use capital budgeting to d

Question

Consider how Bear Valley, a popular ski resort, could use capital budgeting to decide whether the $9 million Autumn Park Lodge expansion would be a good investment. (Click the icon to view the expansion estimates.) (Click the icon to view the present value annuity factor table.) Click the icon to view the present value factor table.) Click the icon to view the future value factor table.) Data Table Read the requirements. Requirement 1. What is the project's NPV? Is the investment attractive? Why or why not? Calculate the net present value of the expansion. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for a Net present value of expansionS Assume that Bear Valley's managers developed the following estimates concerning a planned expansion to its Autumn Park Lodge (all numbers assumed): 119 Number of additional skiers per day . Average number of days per year that weather 157 8 246 135 .9,000,000 14% Assume that Bear Valley uses the straight-line depreciation method and Requirements conditions allow skiing at BearVley . 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 $ 1. What is the projects NPV? Is the investment attractive? Why or why not? 2. Assume the expansion has no residual value. What is the projects NPV? Is the investment still attractive? Why or why not? expects the lodge expansion to have a residual value of $850,000 at the Print Done end of its eight-year life. It has already calculated the average annual net cash inflow per year to be S2,073,813. Fnter any numher in the edit fields then click Check Answer

Explanation / Answer

1.

The investment is attractive since it has a positive net present value.

2.

The investment is still attractive since the net present value without salvage value is also positive.

Year 0 1 to 8 8 Cost of expansion -9000000 Average annual net cash inflow 2073813 Salvage value 850000 Total cash flows -9000000 2073813 850000 Discount factor (14%) 1.000 4.639 0.351 Present value -9000000 9620419 298350 Net present value 918768.5

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