Reference no: EM132978767
Question - Consider how Preston Valley Waterfall Park Lodge could use capital budgeting to decide whether the $13,000,000 Waterfall Park Lodge expansion would be a good investment. Assume Preston ?Valley's managers developed the following estimates concerning the? expansion:
Data Table
Number of additional skiers per day 118 skiers
Average number of days per year that weather conditions allow skiing at Preston Valley 142 days
Useful life of expansion (in years) 9 years
Average cash spent by each skier per day $ 242
Average variable cost of serving each skier per day 77
Cost of expansion 13,000,000
Discount rate 12%
Assume that Preston Valley uses the? straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its nine?-year life.
Requirements -
1. Compute the average annual net cash inflow from the expansion.
2. Compute the average annual operating income from the expansion.
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