uestion #8: Colorado Ski For Life, Inc. is thinking about opening ski camp for children ages 9 - 18 near Aspen CO. In order to start the camp, the company would need to purchase land, build ski lifts, etc and a dormitory-type sleeping and dining facility to house 100 campers. Each year the camp would be un for 10 sessions of I week each. T h as coaches. Since property values in Colorado have experienced a steady increase in value over the past 20 years, it is expected that after using the facility for 20 years, Colorado Ski can sell the property for more than it was originally purchased for. The following amounts have been estimated: e compan y would hire retired professional skiers in the area Cost of land Cost to build dorm and dining facility Annual cash inflows assuming 100 campers and 10 weeks Annual cash outflows Estimated useful life Salvage value Discount rate Present value of an annuity of 1 assuming 10% discount rate Present value of 1 assuming 10% discount rate S 600,000 2,100,000 2,520,000 2,260,000 20 years 3,900,000 10% 8.514 .149 Instructions (Note that to answer these questions, you can use the table values given above or EXCEL) (a) Calculate the net present value of the project. (b) To assess the sensitivity of the project to these estimates, assume that if only 80 campers attend each week, revenues will be $2,085,000 and expenses will be $1,865,000. What is the net present value using these alternative estimates? Discuss your findings -i.e., is this too risky of a project? (c) Assuming the original facts, what is the net present value if the project is actually riskier than first assumed, and a 12% discount rate is more appropriate? The present value of 1 at 12% is .104 and the present value of an annuity of 1 is 7.469