Question
Consider how Rouse Valley Snow Park Lodge could use capital budgeting to decide whether the $12,000,000 Spring Park Lodge expansion would be a good investment.
Consider how Rouse Valley Snow Park Lodge could use capital budgeting to decide whether the $12,000,000 Spring Park Lodge expansion would be a good investment. Assume
Rouse Valley's managers developed the following estimates concerning the expansion:
Number of additional skiers per day. . . . . . . . . . . . . . .121
Average number of days per year that weather conditions allow skiing at Rouse Valley. . . . . . .150
Useful life of expansion (in years). . . . . . . . . . . . . . . . . . .11
Average cash spent by each skier per day. . . . . . . . . . .$244
Average variable cost of serving each skier per day. . . .$79
Cost of expansion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$12,000,000
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8%
Requirements
1. Compute the average annual net cash inflow from the expansion.
2. Compute the average annual operating income from the expansion.
round to the nearest dollar
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