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Compute the after-tax npv of the new lift

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Reference no: EM13491831

Happy Trails Lodge, an all-inclusive vacation resort in the Illusion Mountains of Wyoming, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the extra capacity will be needed. (Assume that Happy Trails Lodge will sell all 300 lift tickets on those 40 days.) Running the new lift will cost $500 a day for the entire 200 days the lodge is open. Assume that the lift tickets at Happy Trails cost $55 a day. The brand new lift has an economic life of 20 years.

Q. Assume that the before-tax required rate of return for Happy Trails Lodge is 14%. Compute the before-tax NPV of the new lift and advise the managers of Happy Trails about whether adding the lift will be a profitable investment. Show calculations to support your answer.

Q.Assume that the after-tax required rate of return for Happy Trails Lodge is 8%, the income tax rate is 40%, and the MACRS recovery period is 10 years. Compute the after-tax NPV of the new lift and advise the managers of Happy Trails about whether adding the lift will be a profitable investment. Show calculations to support your answer.

Reference no: EM13491831

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