A ski resort owner is considering installing a new ski lift, which will cost $900,000. Operation and maintenance expenses are estimated at $1,500 per day when operating. The United States Weather Service estimates that there is a 60% chance of 80 favorable days for skiing per year, a 30% chance of 100 days per year, and a 10% chance of 120 days per year. Center operators estimate that during the first 80 days of snow at a resort, an average of 500 people would use the lift service per day, each paying a $10 fee. If 20 more days are available, the lift will be used by only 400 people per day during the additional period, if another 20 days are available for skiing, only 300 people per day will use the lift during those additional days.

If the owner wants to recover all his capital in no more than 5 years (The salvage value is negligible) , determine:

a) How much will your annual income be if you have 100 favorable days for skiing? Answer

b) How much will the annual benefits be if you have 120 favorable days for skiing? Answer

c) The total benefit if you have 120 favorable days for skiing. Answer

d) The total expected or average profit. Answer

e) Is it advisable to install the ski lift? yes or no

f) If to buy the ski lift the $500,000 were borrowed, paying a fixed 15% annually for 5 years, how much will the annual benefits be if there are 120 favorable days for skiing? Answer

g) If to buy the ski lift you borrow $500,000 paying a fixed 15% annually for 5 years, find the total benefit if you have 80 favorable days for skiing. Answer

h) If the $500,000 were borrowed to buy the ski lift, paying a fixed 15% annually for 5 years, find the total expected or average benefit. Answer

i) If to buy the lift the $500,000 were borrowed paying a fixed 15% annually for 5 years, is it advisable to install the lift? Yes or no?

j) If the $500,000 were borrowed to buy the lift, paying a fixed 15% annually for 5 years, what is the probability that the lift project will be successful or profitable? Answer