Question
Consider how Kyler Valley Spring Park Lodge could use capital budgeting to decide whether the $13,000,000 Spring Park Lodge expansion would be a good investment.
Consider how Kyler Valley Spring Park Lodge could use capital budgeting to decide whether the
$13,000,000 Spring Park Lodge expansion would be a good investment. Assume Kyler
Valley's managers developed the following estimates concerning the expansion.
Under the assumption that the expansion would have a residual value of $950,000, the managers calculated the payback period to be 4.4 years, the ARR to be 20.89%,the average annual operating income to be $1,456,850, the average amount invested to be $6,975,000,and the average annual net cash inflow to be $2,963,100.
Assume that Kyler Valley uses the straight-line depreciation method and now expects the lodge expansion to have zero residual value at the end of its eight-year life.
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I need the solution for the information below: The above data required was previously submittted and I did receive the results which were very helpful for the first part of this prolem; however, I need additional help with the information provided below.
1. Will the project's ARR change? Explain your answer. Recalculate ARR if it changes. Round to two decimal places. Select the formula to calculate the ARR.
2. The ARR (select one) Changes or stays the same, when the standard value change to zero. The average annual operating income (numerator) will be (select one) be higher, be lower, stay the same
because the depreciation expense is (select one) higher, lower, the same. Additionally, the average investment (denominator) is (select one) higher, lower, the same, when the asset does not have a residual value
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