How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask JKCPA Your Own Question
JKCPA
JKCPA, CPA
Category: Finance
Satisfied Customers: 5884
Experience:  Bachelors degree and CPA with Accounting experience.
23848519
Type Your Finance Question Here...
JKCPA is online now
A new question is answered every 9 seconds

This is the assignment Deer Valley Lodge, a ski resort in

This answer was rated:

This is the 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 park 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?

These were he steps the instructor posted
Part 1
4. 1st step: calculate the investment:
5. 2nd step: Determine the annual cash inflows
6. 3rd step: Determine the annual cash outflow
7. 4th step: Calculate the annual cash inflow minus the annual cash outflow
8. 5th step: Calculate the present value of the profit (used table 2 page A13 in appendix B)
9. 6th step: Net present value (The present value of the profit minus the investment.)
10. Part 2
11. 1st step: after tax cash flows
12. 2nd step: calculate the present of the tax savings (used exhibit 11.7 pg 491)
13. 3rd step: Calculate the net present value of the after tax

I think the investment is $3.4M but am having trouble on the cash inflows

Hello,

Thanks for your question.

 

Please click here for the answer.

 

Hope this helps!

 

JKCPA and other Finance Specialists are ready to help you