Reference no: EM132973889

Question - Consider how Rouse Valley Stream Park Lodge could use capital budgeting to decide whether the $13,500,000 Stream Park Lodge expansion would be a good investment. Assume Rouse ?Valley's managers developed the following estimates concerning the? expansion:

Number of additional skiers per day 122 skiers

Average number of days per year that weather conditions allow skiing at Rouse Valley 146 days

Useful life of expansion (in years) 10 years

Average cash spent by each skier per day $245

Average variable cost of serving each skier per day 77

Cost of expansion 13,500,000

Discount rate 8%

Assume that Rouse 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 ten?-year life. The average annual net cash inflow from the expansion is expected to be $2,992,416.

Required - Compute the payback for the expansion project. Round to one decimal place.