Consider how Hunter Valley Snow Park Lodge could use capital budgeting to decide whether the $11,000,000 Snow Park Lodge expansion would be a good investment. Assume Hunter Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) (Click the icon to view additional information) (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) What is the project's IRR? Is the investment attractive? Why or why not? The internal rate of return (IRR) of the expansion is 10-12% 10-12% 12-14% 16-18% 15-16% on list Data table Qu Qu Park Lodge could use capital Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Hunter Valley Useful life of expansion (in years) Average cash spent by each skier per day 121 skiers 42 days 7 years $ 241 Average variable cost of serving each skier per day 83 Cost of expansion 11,000,000 Discount rate 10% Print Done - More info Assume that Hunter Valley uses the straight-line depreciation method and expects the lodge expansion to have no residual value at the end of its seven-year life. The project is expected to have an average annual net cash inflow of $2,714,756. The NPV of the expansion is expected to be $2,215,432. Print Done - Reference Present Value of $1 Periods 1% 2% 3% 4% 5% 6% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 Period 3 0.971 0.942 0.915 0.889 0.864 Period 4 0.961 0.924 0.888 0.855 0.823 Period 5 0.951 0.906 0.863 0.822 7% 8% 9% 10% $2% 14% 0.935 0.873 0.926 0.917 0.909 0.893 0.877 0.857 0.842 0.826 0.797 0.769 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.784 0.747 0.713 0.681 0.650 0.621 0.567 0.519 Period 6 Period 7 0.933 0.871 0.813 0.760 Period 8 0.923 0.853 0.789 0.731 Period 9 0.914 0.837 0.766 0.703 Period 10 0.905 0.820 0.744 0.676 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.711 0.665 0.623 0.583 0.547 0.513 0.452 0.400 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0.308 0.614 0.558 Period 11 0.896 0.804 0.722 0.650 0.585 0.527 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 Period 13 0.879 0.773 0.681 0.601 Period 14 0.870 0.758 0.661 0.577 Period 15 0.861 0.743 0.642 0.555 0.508 0.463 0.422 0.386 0.322 0.270 0.475 0.444 0.530 0.469 0.415 0.429 0.388 0.350 0.287 0.237 0.397 0.356 0.319 0.257 0.208 0.368 0.326 0.290 0.229 0.182 0.505 0.442 0.388 0.340 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.299 0.263 0.205 0.160 0.140 Period 16 0.853 0.728 0.623 0.534 0.458 Period 17 0.844 0.714 0.605 0.513 0.436 Period 18 0.836 0.700 0.587 0.494 0.416 Period 19 0.828 0.686 0.570 0.475 0.396 Period 20 0.820 0.673 0.554 0.456 0.377 0.394 0.339 0.292 0.252 0.218 0.163 0.123 0.371 0.317 0.270 0.231 0.198 0.146 0.108 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.312 0.258 0.215 0.178 0.149 0.104 0.073 Period 21 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.093 0.064 Print Done - - X Reference Present Value of Ordinary Annuity of $1 Periods 1% 2% 3% Period 1 0.990 0.980 0.971 Period 2 1.970 1.942 Period 3 2.941 2.884 Period 4 3.902 3.808 1.913 2.829 3.717 Period 5 4.853 4.713 4.580 4% 5% 6% 7% 8% 9% 10% 12% 14% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 Period 6 5.795 5.601 5.417 5.242 Period 7 6.728 6.472 6.230 6.002 Period 8 7.652 7.325 7.020 6.733 Period 9 8.566 8.162 7.786 7.435 Period 10 9.471 8.983 8.530 8.111 8.760 5.076 4.917 4.767 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 Period 11 10.368 9.787 9.253 8.306 7.887 7.499 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 Period 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 Period 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 4.623 4.486 4.355 4.111 3.889 7.139 6.805 6.495 5.938 5.453 7.536 7.161 6.814 6.194 5.660 7.904 7.487 7.103 6.424 5.842 8.244 7.786 7.367 6.628 6.002 8.559 8.061 7.606 6.811 6.142 Period 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 6.974 6.265 Period 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.120 6.373 Period 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 Period 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.469 6.623 Period 21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 Print Done