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Consider how Rouse Valley River Park Lodge could use capital budgeting to decide whether the $11,500,000 River Park Lodge expansion would be a good investment.
Consider how Rouse Valley River Park Lodge could use capital budgeting to decide whether the $11,500,000 River Park Lodge expansion would be a good investment. Assume Rouse Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) 114 skiers 142 days Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Rouse 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 8 years 245 87 11,500,000 Discount rate 10% Assume that Rouse Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its eight-year life. 1. Compute the average annual net cash inflow from the expansion. 2. Compute the average annual operating income from the expansion
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