4.

Consider how Root Valley Brook Park Lodge could use capital budgeting to decide whether the $12,000,000 Brook Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) Read the requirements. Requirement 1. Compute the average annual net cash inflow from the expansion. The average annual net cash inflow from the expansion is 2,616,480 Requirement 2. Compute the average annual operating income from the expansion. The average annual operating income from the expansion is 115 skiers 144 days 8 years Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Root 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 246 88 12,000,000 Discount rate 10% Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $950,000 at the end of its eight-year life