Question
Hidden Valley Golf Course is considering installing a new irrigation system on the course. The cost of installing the system is $500,000 and is incurred
Hidden Valley Golf Course is considering installing a new irrigation system on the course. The cost of installing the system is $500,000 and is incurred today. The system will have a useful life of 10 years and can be depreciated in a straight line method. At the end of 10 years, the salvage value will be $10,000. The system will keep the greens and fairways in better condition, thereby attracting more golfers. Based on a market survey, the course will see an incremental increase of 2,500 rounds per year at $40 per round. However, the irrigation system also has maintenance costs of $20,000 per year. Hidden Valley faces a 40% tax rate and has a cost of capital of 11%. Calculate the NPV of the irrigation system.
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