Consider how Root Valley Waterfall Park Lodge could use capital budgeting to decide whether the $12,500,000 Waterfall Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion:

What is the project's NPV (round to nearest dollar)? Is the investment attractive? Why or why not?

Calculate the net present value of the expansion. 

 

Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its ten-year life. They have already calculated the average annual net cash inflow per year to be $2,738,736.

Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Root Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable cost of serving each skier per day Cost of expansion Discount rate $ EA 114 skiers 143 days 10 years 243 75 12,500,000 10%