For this question, it might be useful to value only the incremental revenues and costs added by the new chair lifts.

Incremental Revenues: The new chair lifts will increase revenues in two ways

Incremental Maintenance costs $=$ Old Maintenance Costs $-$ New Maintenance Costs

Incremental Employee costs $=0.$ The same employees will be employed at the same costs under either new or old chairlift plans

Incremental Depreciation $=$ Old chairlift depreciation charge $-$ New chairlift depreciation charge

Incremental Salvage value: Use the above amortization schedules to determine book values

Complete NPV Analysis

$\backslash$table$[[$Year$,2022,2023,2024,2025,2026,2027,2028],[+\backslash$Delta Revenue$],[+\backslash$Delta Cost savings$],[-\backslash$Delta Depreciation$],[\backslash$Delta EBIT$],[,,,,,,,],[$After tax $\backslash$Delta EBIT$],[+\backslash$Delta Depreciation$],[+\backslash$Delta SV$],[-\backslash$Delta Capital Expenditure$],[\backslash$table$[[\backslash$Delta Free Cash Flow$]]],[$PV Factor @ $12\%],[$PV$],[$NPV$],[$IRR$],[$MIRR$,,,,,,,]]$ The Summit at Crystal Mountain is a small ski resort located just outside Mount

Rainier, Washington; approximately $100$ miles from Seattle. The resort consists of slopes

that appeal to skiers of several different skill levels, though none of the slopes are difficult

enough to appeal to the most highly skilled skiers. For a modest $$25$ lift fee, resort guests

are allowed unlimited access to any of the resort$$s slopes for the day.

In recent years, other regional ski slopes in northern Washington and in Oregon

have steadily eroded attendance at The Summit at Crystal Mountain. Resort attendance has

dropped from $250,000$ in $2016$ to $190,000$ for the recently completed $2022$ season.

Current projections are that the trend will continue, dropping attendance to $180,000$ in

$2023,$ and $175,000$ in $2024,$ before leveling off at $170,000$ for $2025$ and beyond. Lift

ticket prices are expected to increase at the rate of inflation, $5\%.$

Following completion of the $2022$ season, The Summit at Crystal Mountain hired a

market research company to conduct a survey aimed at uncovering the primary reasons for

the decline in resort attendance. The survey revealed that many teens preferred other

resorts because of new modern chair lifts that had been added to each resort. The market

research firm strongly urged The Summit at Crystal Mountain to consider purchasing a new

set of state$-$of$-$the$-$art chair lifts of its own.

In addition to the $$20,000$ The Summit at Crystal Mountain has spent on the survey,

a new set of chair lifts would initially cost the resort $$1,500,000.$ The new lifts would be

ready for the opening of the $2023$ season. The resort$$s current lifts were purchased at the

end of the $2018$ season for $$400,000.$ They are being depreciated on a straight$-$line basis

over an $8-$year life. However, The Summit at Crystal Mountain anticipates that their useful

life could be stretched to $10$ years $($if not replaced$)$ at which time they could be sold for

$$50,000.$ Each year the resort spends $$20,000$ on maintenance of the old chair lifts.

$2$

If the new lifts are purchased, The Summit at Crystal Mountain would sell its current

lifts immediately. However, the expected sales price would still be just $$50,000.$ If

purchased, the new lifts are expected to be depreciated on a straight$-$line basis over a six$-$

year useful life. The Summit at Crystal Mountain believes that the new lifts could be sold

for $$100,000$ at the end of their $6-$year useful life. Annual maintenance expenses are

expected to be $$15,000.$

The Summit at Crystal Mountain believes that if the new lifts are purchased, resort

attendance will remain constant at $2022$ levels for the foreseeable future. In addition, they

believe that the new lifts will allow them to increase the resort$$s lift ticket price to

$$30$ for the $2023$ season. After $2023,$ they anticipate increasing ticket prices at the expected

rate of inflation, $5\%.$

The Summit at Crystal Mountain maintains a minimum cash balance of $$25,000.$ Due

to the nature of the business, other working capital accounts $($e$.$g$.,$ inventory, accounts

receivable and accounts payable$)$ are negligible. Regardless of resort attendance, the resort

maintains a staff of $150$ employees at an average cost of $$10,000$ per employee per season.

The nominal after$-$tax discount rate on the project is $12\%$ and the resort$$s marginal tax rate

is $34\%.$

Conduct an analysis to assist The Summit at Crystal Mountain in deciding whether to

purchase the new lifts. Assume that all cash flows are at year$-$end. That is$,$ if The Summit

at Crystal Mountain purchases the new lifts, the purchase will take place at the end of $2022.$