Explore BrainMass

Explore BrainMass

    Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah: Compute the before-tax NPV of the new lift. What subjective factors would affect the investment decision?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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 and the added cash expenses for each skier-day 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 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?

    © BrainMass Inc. brainmass.com June 3, 2020, 8:19 pm ad1c9bdddf
    https://brainmass.com/business/net-present-value/132665

    Solution Summary

    Spreadsheet (excel) shows you computation and then discussion helps you to understand the choices and subjective factors.

    $2.19

    ADVERTISEMENT