Consider how Preston Valley Waterfall Park Lodge could use capital budgeting to decide whether the $13,000,000 Waterfall Park Lodge expansion would be a good investment. Assume Preston Valley's managers developed the following estimates concerning theexpansion:

Data Table

Number of additional skiers per day 118 skiers

Average number of days per year that weather conditions allow skiing at Preston Valley

142 days

Useful life of expansion (in years) 9 years

Average cash spent by each skier per day $ 242

Average variable cost of serving each skier per day 77

Cost of expansion 13,000,000

Discount rate 12%

Assume that Preston Valley uses thestraight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its nine-year life.

Requirements

1. Compute the average annual net cash inflow from the expansion.

The average annual net cash inflow from the expansion is

2. Compute the average annual operating income from the expansion.