Consider how Hunter Valley Snow Park Lodge could use capital budgeting to decide whether the $11,000,000 Snow
Question:
Consider how Hunter Valley Snow Park Lodge could use capital budgeting to decide whether the $11,000,000 Snow Park Lodge expansion would be a good investment. Assume Hunter Valley’s managers developed the following estimates concerning the expansion:
Number of additional skiers per day .................................................121 skiers
Average number of days per year that weather conditions
allow skiing at Hunter Valley...............................................................142 days
Useful life of expansion (in years) .........................................................7 years
Average cash spent by each skier per day ....................................$ 241
Average variable cost of serving each skier per day......................... 83
Cost of expansion ....................................................................11,000,000
Discount rate ..........................................................................................10%
Assume that Hunter Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its seven-year life.
Requirements
1. Compute the average annual net cash inflow from the expansion.
2. Compute the average annual operating income from the expansion.
Step by Step Answer:
Horngrens Financial And Managerial Accounting
ISBN: 9780134486833
6th Edition
Authors: Tracie Miller Nobles, Brenda Mattison, Ella Mae Matsumura