ACCT310 phase 5 IP Assignment - ACCT 310 phase 5 IP Assignment (Graded A+) - 36318

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arsalanahmed

arsalanahmed

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  • From: Business,
  • Posted on: Wed 11 Dec, 2013
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1 page doc and 1 Excel Spreadsheet

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?

You can view a present value table here.

Grading Criteria

Percentage

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.

30%

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.

30%

What subjective factors would affect the investment decision?Supporting research/arguments made

40%

 

 

Solution Description

A++++++++++++++

Attachments
Resort.docx
Resort.docx
Resort calculations.xlsx
Resort calculat...