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Deer Valley Lodge - NPV before and after tax

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Deer Valley Lodge has a plan to add 5 new lifts. One lift costs $2million
preparing the slope & installing another lift costs $1.3 million.
Lift allows 300 add'tl skiers on slope, however,there are only 40 days a year when the extra capacity will be needed. Assuming Deer park will sell all 300 lift tickets on those 40 days.
Running the new lift will cost$500 a day for entire 200 days the lodge is open.
Lift tix = $55 a day. & the added cash expenses for each skier are$5. 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 & advise managers if it will be profitable. Show calculations.
2 Assume the after tax rate of return for Deer Valley is 8%, & income tax rate is 40%, and the MACRS recovery period is 10 years. Compute the after-tax NPV of new lift & advise managers if it will be profitable. why or why not? & show calculations.

3 What subjective factors would affect the investment decision??

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This solution is comprised of a detailed calculation to compute NPV before and after tax for Deer Valley Lodge.

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Computing NPV-Before & After Tax
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Deer Valley Lodge has a plan to add 5 new lifts. One lift costs $2million
preparing the slope & installing another lift costs $1.3 million.
Lift allows 300 add'tl skiers on slope, however, there are only 40 days a year when the extra capacity will be needed. Assuming Deer park will sell all 300 lift tickets on those 40 days.
Running the new lift will cost$500 a day for entire 200 days the lodge is open.
Lift ticket = $55 a day. & the added cash expenses for ...

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