Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah - 94945

Solution Posted by
Solution Detail
Price: $15.00
  • From: Business, Finance
  • Posted on: Wed 20 Jan, 2016
  • Request id: None
  • Purchased: 0 time(s)
  • Average Rating: No rating
Request Description
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%. (a) 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. (b) 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. (c) What subjective factors would affect the investment decision?
Solution Description
<
Attachments
Deer_Valley_Lodge,_a_ski_resort_in_the_Wasatch_Mountains_of_Utah,_has_plans_to_eventually_add_five_n
Deer_Valley_Lod...