Question

Consider how McKnight Valley Brook Park Lodge could use capital budgeting to decide whether the $11,500,000 Brook Park Lodge expansion would be a good investment. Assume McKnight Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) Read the requirements. Data Table Requirement 1. Compute the average annual net cash inflow from the expansion The average annual net cash inflow from the expansion is $ 114 skiers 144 days Number of additional skiers per day Average number of days per year that weather conditions allow skiing at McKnight Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable cost of serving each skier per day Cost of expansion 12 years 244 $ 75 11,500,000 Discount rate 12% Assume that McKnight Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $1,000,000 at the end of its twelve-year life.

Answer 1

Computation Of Average Annual Net Cash Inflow From The Expansion 114 144 16416 40,05,504 Number Of Additional Skiers Per Day Average Number Of Days In A Year Total Skiers In A Year (a*b) Average Annual Cash Spent By Skier (16416 skiers * $244) Average Annual Varaible Cost Of Serving skier (16416 skiers *$75) Average Annual Cash Inflow (d-e) $ 12,31,200 $ 27,74,304