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Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts.

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Question;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.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 answerAssume 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.What subjective factors would affect the investment;decision?

 

Paper#43373 | Written in 18-Jul-2015

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