PLEASE ANSWER NUMBER 4 ONLY

DEER VALLEY RESORT: Capital Budgeting Nestled deep in the Wasatch Mountains near Park City, Utah, Deer Valley Ski Resort strives for excellence everywhere possible. Each winter since its opening in 1980, a growing number of skiers have chosen to experience the "Deer Valley Difference" - meticulously groomed slopes, friendly staff, and gourmet cuisine. With owners and managers eager to pamper skiers beyond expectations, a $13 million renovation of the base lodge and facilities was approved for 1995. The project began in April 1995 and added nearly 50,000 square feet of guest service space. The number of ticket windows doubled to 16, child-care space was expanded, and lockers and basket-check service were added. The lodge's retail and ski rental spaces were remodeled and expanded, and new retail and ski rental spaces were built. The project was completed in December 1995, just-in- time for the opening of the 1995-1996 ski season. The base lodge renovation was assigned a high priority in 1995 because the owners saw the immediate benefit to enhancing Deer Valley's image and reputation through expanded restaurant and ski-lift services, as well as through reduced bottlenecks in guest service areas, such as ticket sales and rentals. For the information acquisition stage in the capital budgeting process, managers considered which areas to renovate and where to add square footage to the lodge. Although preliminary plans and drawings were used to review the project for funding, management worked with architects to finalize the plans. Quantitative measures, such as return on skier days (increased demand), speed of lift-ticket and ski-school ships. Increased child care revenues, and greater food and beverage sales, were determined. Not present value and payback periods comprised part of the analysis. Qualitative measures, such as increased customer satisfaction and enhanced resort image were considered as well, Deer Valley regularly ranks at or near the top of ski magazines consumer surveys in these areas. Because the base lodge is such an integral part of each guest's overall impression of their ski experience, the qualitative measures carried significant weight in the final decision to fund the project, which was made 'in the selection stage of the capital budgeting process. How did the renovation project come into existence? Deer Valley management follows a structured approach to capital budgeting and planning. First, management maintains a rolling 10-year capital plan, which contains a master list of all projects planned for funding in the next decade. It is updated each spring, reflecting how well the resort performed during the preceding winter season. In the identification stage, ideas for capital projects come from each major operating department: ski school food and beverage, mountain operations, accounting, and more. Each idea submitted must come with a description of the project. Its anticipated benefits, and detailed cost estimates, including bids, During the search stage, proposed ideas are reviewed by the ski area's "Future Committee" which is composed of senior management and area owners. Proposals are ranked and prioritized for funding. The final decision on how much to spend and which projects to pursue each year rests with the ski resorts general manager and owners. The financing stage came next. Deer Valley routinely starts and completes its capital projects between April and December of each year, so standing lines of credit at local banks were used for funding. Resort owners expected to pay off the balanced owed on the project in two years based on increases in lift-tickets and the restaurant revenues from additional skier days. With the renovation complete, a post-investment audit as part of the implementation and control stage was performed to evaluate the project's contribution to the resort's profitability and image. QUESTIONS: 1. What other types of capital budgeting project would you expect Deer Valley to have in its rolling 10-year plan? If you were making the decision to allocate funds for projects, what factors would you consider in your analysis? 2. What influence might competition and events such as the 2002 Winter Olympics - held in Park City - have on Deer Valley's capital budgeting and planning? 3. What risks do you expect Deer Valley faced with the base lodge renovation project? 4. Based on the facts 'What is your overall impression of the decision to pursue this project? Explain