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Category > Accounting Posted 18 Dec 2017 My Price 10.00

Compute the before-tax NPV of the new lift

Hi my name is Ms Chris Jones and this is my homework assignment:

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.

2. Assume that the after-tax required rate of return for Deer Valley is 8%, the income tax rate is 40%, and the MACRS recovery period is 10 years. Compute the after-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.

3. What subjective factors would affect the investment decision?

 

I have already began to answer the question in an Excel spreadsheet.  I just want to make sure my answers are correct and I need help with question #3.  I don't know how to word it.

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Also used a PV annunity table for Part 1 - could not upload it, but it was also found on sheet 2 of the Excel document.

Used the U5IP_MACRS_Depreciation chart for Part 2 of the excel homework

 

 

Answers

CourseLover
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Status NEW Posted 18 Dec 2017 02:12 PM My Price 10.00

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