What subjective factors would affect the investment decision

Assignment Help Accounting Basics

Reference no: EM13134241

Deer Valley Lodge, a ski area near Salt Lake City, has plans to eventually add five new chairlifts. Suppose that one of the lifts costs $2.2 million and preparing the slope and installing the lift cost another $1.48 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the lodge needs the extra capacity. (Assume Deer Valley 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 lift tickets at Deer Valley cost $65 a day and added cash expenses for each skier day are $9. The new lift has an economic life of 20 years.

1) Assume that the before tax required rate of return for Deer Valley is 14%. Compute the before tax NPV of the new lift and advise the managers of Deer Valley about whether adding the lift will be a profitable investment.

2) Assume that the after-tax required rate of return for Deer Valley is 8%, the income tax rate is 40%, advise the managers of Deer Valley about whether adding the lift will be profitable investment.

3) What subjective factors would affect the investment decision?

Reference no: EM13134241

Questions Cloud

Our ideal job interview scenario : discuss and apply what you've learned this week about proper interview techniques to create a scenario of the perfect interview environment (place, time, seating arrangements, etc.) and the perfect set of interview questions

Determining height of box : Suppose that a box has a volume of 100 cubic centimeters and that the area of the bottom of the box is 50 square centimeters. Find the height of the box. Show all the steps for solving this question.

Theory of economic behaviour : Neoclassical economics was 'a crucial stage in the creation of a genuinely scientific unified theory of economic behaviour'. Discuss.

Determine likelihood that package will contain more ounces : Standard deviation of 0.17 ounces, assuming the weight of cereal is normally distributed, determine the likelihood that a package will contain more than 12.2 ounces?

What subjective factors would affect the investment decision : Assume that the before tax required rate of return for Deer Valley is 14%. Compute the before tax NPV of the new lift and advise the managers of Deer Valley about whether adding the lift will be a profitable investment.

Determining area of trapezoid : Find the area of a trapezoid with a height of 8 m and bases of 14 m and 19 m.

What is the molarity of the ethanol in this solution : A solution of ethanol (C2H5OH) in water is prepared by dissolving 63.4 mL of ethanol (density = 0.79 g/cm3) in enough water to make 250.0 mL of solution.

How much should stockton corporation capitalize as the cost : Stockton Corporation purchased equipment for $32,000. Stockton also paid $400 for freight and insurance while the equipment was in transit. Sales tax amounted to $240. Insurance, taxes, and maintenance the first year of use cost $1,000. How much s..

Draw the abbreviated structural formula of the products : Draw the abbreviated structural formula of the products of the complete hydrolysis of lidocain.

User Account

All Pages