Deer Valley Lodge, a ski (Graded A+) - use as a guide only
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arsalanahmed
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• Posted on: Mon 30 Sep, 2013
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250 wordds and 1 Excel

Consider the following scenario:

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

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