Consider how Flint Valley, a popular ski resort, could use capital budgeting to decide whether the $8 million Stream Park Lodge expansion would be a good investment.
Assume that 's managers developed the following estimates concerning a planned expansion to its Park Lodge (all numbers assumed): Number of additional skiers per day. . . . . . . . . . . . . . . 123 Average number of days per year that weather conditions allow skiing at Flint Valley. . . . . . . . . . . . . . 156 Useful life of expansion (in years). . . . . . . . . . . . . . . . . 9 Average cash spent by each skier per day. . . . . . . . . . $238 Average variable cost of serving each skier per day. $146 Cost of expansion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,000,000 Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14% Assume that uses the straight-line depreciation method and expects the lodge expansion to have a residual value of at the end of its -year life. It has already calculated the average annual net cash inflow per year to be .
Assume that Flint Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $750,000 at the end of its nine-year life. It has already calculated the average annual net cash inflow per year to be $1,765,296.
| What is the project's NPV? Is the investment attractive? Why or why not? |
| | Assume the expansion has no residual value. What is the project's NPV? Is the investment still attractive? Why or why not? |
- X Reference Present Value of Annuity of $1 Periods Period 1 Period 2 Period 3 Period 4 Period 5 1% 0.990 1.970 2.941 3.902 4.853 2% 3% 4% 0.980 0.971 0.962 1.942 1.913 1.886 2.884 2.829 2.775 3.808 3.717 3.630 4.713 4.580 4.452 5% 6% 8% 10% 12% 0.952 0.943 0.926 0.909 0.893 1.859 1.833 1.783 1.736 1.690 2.723 2.673 2.577 2.487 2.402 3.546 3.465 3.312 3.170 3.037 4.329 4.212 3.993 3.791 3.605 14% 0.877 1.647 2.322 2.914 3.433 16% 0.862 1.605 2.246 2.798 3.274 18% 0.847 1.566 2.174 2.690 3.127 20% 0.833 1.528 2.106 2.589 2.991 Period 6 5.795 Period 7 6.728 Period 8 7.652 Period 9 8.566 Period 10 9.471 5.601 5.417 5.242 5.076 4.917 4.623 4.355 4.111 6.472 6.230 6.002 5.786 5.5825.206 4.868 4.564 73257.0206.733 6.463 6.210 5.747 5.335 4.968 8.1627.786 7.435 | 7.108 6.8026.247 5.759 5.328 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 3.889 4.288 4.639 4.946 5.216 3.685 4.039 4.344 4.607 4.833 3.498 3.326 3.812 3.605 4.078 3.837 4.303 4.031 4.494 4.192 Period 11 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 Period 13 12. 134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 Period 14 13.004 12.106 11.296 | 10.563 9.899 9.295 8.244 7.367 6.628 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 5.453 5.660 5.842 6.002 6.142 5.029 5.197 5.342 5.468 5.575 4.656 4.793 4.910 5.008 5.092 4.327 4.439 4.533 4.611 4.675 Print Done - Reference 18% Periods eriod 1 eriod 2 eriod 3 eriod 4 eriod 5 1% 1.000 2.010 3.030 4.060 5.101 2% 1.000 2.020 3.060 4.122 5.204 3% 1.000 2.030 3.091 4.184 5.309 4% 1.000 2.040 3.122 4.246 Future value of Annuity of $1 5% 6% 8% 10% 1.000 1.000 1.000 1.000 2.050 2.060 2.080 2.100 3.153 3.184 3.246 3.310 4.310 4.375 4.506 4.641 5.526 5.637 5.867 6.105 12% 1.000 2.120 3.374 4.779 6.353 14% 1.000 2.140 3.440 4.921 6.610 16% 1.000 2.160 3.506 5.066 6.877 1.000 2.180 3.572 5.215 7.154 20% 1.000 2.200 3.640 5.368 7.442 5.416 eriod 6 eriod 7 eriod 8 eriod 9 eriod 10 6.152 6.308 6.468 6.633 6.802 7.214 7.434 7.662 7.898 8.142 8.286 8.583 8.892 9.214 9.549 9.369 9.755 10.159 10.583 11.027 10.462 10.950 11.464 12.006 12.578 6.975 8.394 9.897 11.491 13.181 7.336 8.923 10.637 12.488 14.487 7.716 8.115 9.487 10.089 11.436 12.300 13.579 14.776 15.937 17.549 8.536 10.730 13.233 16.085 19.337 8.977 11.414 14.240 17.519 21.321 9.442 12.142 15.327 19.086 23.521 9.930 12.916 16.499 20.799 25.959 eriod 11 eriod 12 eriod 13 eriod 14 eriod 15 11.567 12.169 12.808 13.486 14.207 14.972 16.645 18.531 20.655 12.683 13.412 14.192 15.026 15.917 16.870 18.977 21.384 24.133 13.809 14.680 15.618 16.627 | 17.713 18.882 21.495 24.523 28.029 14.947 | 15.974 17.086 18.292 19.599 21.015 24.215 27.975 32.393 16.097 17.293 18.599 20.024 21.579 23.276 27.152 31.772 37.280 23.045 27.271 32.089 37.581 43.842 25.733 30.850 36.786 43.672 51.660 28.755 34.931 42.219 50.818 60.965 32.150 39.581 48.497 59.196 72.035 . i Reference Present Value of $1 Periods Period 1 Period 2 Period 3 Period 4 Period 5 1% 2% 0.990 0.980 0.980 0.961 0.971 0.942 0.961 0.924 0.951 0.906 3% 4% 5% 0.971 0.962 0.952 0.943 0.925 0.907 0.915 0.889 0.864 0.888 0.855 0.823 0.863 0.822 0.784 6% 8% 10% 12% 0.943 0.926 0.909 0.893 0.890 0.857 0.826 0.797 0.840 0.794 0.751 0.712 0.792 0.735 0.683 0.636 0.747 0.681 0.621 0.567 14% 0.877 0.769 0.675 0.592 0.519 16% 0.862 0.743 0.641 0.552 0.476 18% 0.847 0.718 0.609 0.516 0.437 20% 0.833 0.694 0.579 0.482 0.402 Period 6 0.942 0.888 Period 7 0.933 0.871 Period 8 0.923 0.853 Period 9 0.914 0.837 Period 10 0.905 0.820 0.837 0.813 0.789 0.766 0.744 0.790 0.746 0.760 0.711 0.731 0.677 0.703 0.645 0.676 0.614 0.705 0.665 0.627 0.592 0.558 0.630 0.564 0.507 0.456 0.583 0.513 0.452 0.400 0.540 0.467 0.404 0.351 0.500 0.424 0.361 0.308 0.463 0.386 0.322 0.270 0.410 0.354 0.305 0.263 0.227 0.370 0.314 0.266 0.225 0.191 0.335 0.279 0.233 0.194 0.162 Period 110.896 Period 12 0.887 Period 13 0.879 Period 14 0.870 Period 15 0.861 0.804 0.788 0.773 0.758 0.743 0.722 0.650 0.585 0.701 0.625 0.557 0.681 0.601 0.530 0.661 0.577 0.505 0.642 0.555 0.481 0.527 0.497 0.469 0.442 0.417 0.429 0.350 0.397 0.319 0.368 0.290 0.340 0.263 0.315 0.239 0.287 0.257 0.229 0.205 0.183 0.237 0.208 0.182 0.160 0.140 0.195 0.168 0.145 0.125 0.108 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 Future Value of $1 eriods od 1 od 2 od 3 od 4 od 5 1% 1.010 1.020 1.030 1.041 1.051 2% 1.020 1.040 1.061 1.082 1.104 3% 1.030 1.061 1.093 1.126 1.159 4% 1.040 1.082 1.125 1.170 1.217 5% 1.050 1.103 1.158 1.216 1.276 6% 1.060 1.124 1.191 1.262 1.338 8% 1.080 1.166 1.260 1.360 1.469 10% 1.100 1.210 1.331 1.464 1.611 12% 1.120 1.254 1.405 1.574 1.762 14% 1.140 1.300 1.482 1.689 1.925 16% 1.160 1.346 1.561 1.811 2.100 18% 1.180 1.392 1.643 1.939 2.288 20% 1.200 1.440 1.728 2.074 2.488 od 6 od 7 od 8 od 9 od 10 1.062 1.072 1.083 1.094 1.105 1.126 1.149 1.172 1.195 1.219 1.194 1.230 1.267 1.305 1.344 1.265 1.316 1.369 1.423 1.480 1.340 1.407 1.477 1.551 1.629 1.419 1.504 1.594 1.689 1.791 1.587 1.714 1.851 1.999 2.159 1.772 1.949 2.144 2.358 2.594 1.974 2.211 2.476 2.773 3.106 2.195 2.502 2.853 3.252 3.707 2.436 2.826 3.278 3.803 4.411 2.700 3.185 3.759 4.435 5.234 2.986 3.583 4.300 5.160 6.192 od 11 od 12 od 13 od 14 od 15 1.116 1.127 1.138 1.149 1.161 1.243 1.268 1.294 1.319 1.346 1.384 1.426 1.469 1.513 1.558 1.539 1.601 1.665 1.732 1.801 1.710 1.796 1.886 1.980 2.079 1.898 2.012 2.133 2.261 2.397 2.332 2.518 2.720 2.937 3.172 2.853 3.138 3.452 3.797 4.177 3.479 3.896 4.363 4.887 5.474 4.226 4.818 5.492 6.261 7.138 5.117 5.936 6.886 7.988 9.266 6.176 7.288 8.599 10.147 11.974 7.430 8.916 10.699 12.839 15.407
