Determine the IRR on the chairlift expansion in Problem 7 of Exercise 16.2. Should the expansion be undertaken, given Jasper Ski Corp.’s required return of 14%?
In Problem 7
Jasper Ski Corp. is studying the feasibility of installing a new chair lift to expand the capacity of its downhill-skiing operation. Site preparation would require the expenditure of $900,000 at the beginning of the first year. Construction would take place early in the second year at a cost of $3.8 million. The lift would have a useful life of 12 years and a residual value of $800,000. The increased capacity should generate increased annual profits of $600,000 at the end of Years 2 to 5 inclusive and $1 million in Years 6 to 13 inclusive.