Robertson Resorts is considering whether to expand their Pagosa Springs Lodge. The expansion will create 24 additional
Question:
Robertson Resorts is considering whether to expand their Pagosa Springs Lodge. The expansion will create 24 additional rooms for rent. The following estimates are available:
Cost of expansion ...................... $5,000,000
Discount rate ........................................... 8%
Useful life ................................................. 20
Annual rental income .............. $1,250,000
Annual operating expenses ....... $ 800,000
Robertson uses straight-line depreciation and the lodge expansion will have a residual value $2,000,000.
Required:
1. Calculate the annual net operating income from the expansion.
2. Calculate the annual net cash inflow from the expansion.
3. Calculate the ARR.
4. Calculate the payback period.
5. Calculate the NPV.
Step by Step Answer:
Managerial Accounting
ISBN: 978-1260413984
4th edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips