Consider how Wolf Valley, a popular ski resort, could use capital budgeting to decide whether the \($8\) million Brook Park Lodge expansion would be a good investment.

Requirements:

1. Compute the average annual net cash inflow from the expansion.
2. Compute the average annual operating income from the expansion.
3. Compute the payback period.
4. Compute the ARR.

Data From Wolf Valley expansion Data Set:-

Assume that Wolf 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 eight-year life.

Transcribed Image Text:

Number of additional skiers per day. 125 Average number of days per year that weather conditions allow skiing at Wolf Valley. 160 Useful life of expansion (in years)... 8 Average cash spent by each skier per day $ 240 Average variable cost of serving each skier per day. $ 142 Cost of expansion $8,000,000 Discount rate 12%