Question

Consider how Clare Valley, a popular ski resort, could use capital budgeting to decide whether the 59.5 million Snow Park Lodge expansion would be a good investment. (Click the icon to view the expansion estimates.) (Click the icon to view the present value annuity factor table.) (Click the icon to view the present value factor table.) (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor table.) Read the requirements Requirement 1. What is the project's NPV? Is the investment attractive? Why or why not? Calculate the net present value of the expansion (Round your answer to the nearest whole dollar. Use parentheses or a minus sign for a negative net present value.) Net present value of expansion $ 1 Data Table - X Assume that Clare Valley's managers developed the following estimates concerning a planned expansion to its Snow Park Lodge (all numbers assumed): Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Clare 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.......... .....$ 9,500,000 Discount rate........ . . ... . 10% Assume that Clare Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850.000 at the end of its ten-year life. It has already calculated the average annual net cash inflow per year to be $2.126,649. Print Done Enter any number in the edit fields and then click Check Answer. 3 remaining 3 parts Clear All

Answer 1

Answer with working is given below

Calculation of Net present value PV factor Discounted Cash inflows at 10% Cash inflows Annual cash inflows Salvage value Present value of cash inflows Less: Initial investment Net Present value $13,067,337 $327,712 $2,126,6496.1446 $850,000 0.3855 $13,395,049 $9,500,000 $3,895,049 Net present value of expansion $3,895,049 Since the Net present value is positive the investment should be done