Consider how White Valley Snow Park Lodge could use capital budgeting to decide whether the $11,500,000 Spring Park Lodge expansion would be a good investment. Assume White 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 White Valley. . . . . . . . .	151
Useful life of expansion (in years). . . . . . . . . . . . . . . . . . .	7
Average cash spent by each skier per day. . . . . . . . . . .	$247
Average variable cost of serving each skier per day. . . .	$80
Cost of expansion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$11,500,000
Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14%

Assume that White Valley uses the straight-line depreciation method and expects the lodge expansion to have no residual value at the end of its 77-year

life. They have already calculated the average annual net cash inflow per year to be $3,051,257.

Requirement

1. What is the project's NPV? Is the investment attractive? Why?

	Present Value of Annuity of $1
	Period	8%	10%	12%	14%
	1	0.926	0.909	0.893	0.877
	2	1.783	1.736	1.690	1.647
	3	2.577	2.487	2.402	2.322
	4	3.312	3.170	3.037	2.914
	5	3.993	3.791	3.605	3.433
	6	4.623	4.355	4.111	3.889
	7	5.206	4.868	4.564	4.288
	8	5.747	5.335	4.968	4.639
	9	6.247	5.759	5.328	4.946
	10	6.710	6.145	5.650	5.216
	11	7.139	6.495	5.938	5.553
	12	7.536	6.814	6.194	5.660