Consider how Root Valley Waterfall Park Lodge could use capital budgeting to decide whether the $12,500,000 Waterfall Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion: 1(Click the icon to view the estimates.) Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $950,000 at the end of its eleven-year life. The average annual net cash inflow from the expansion is expected to be $2,892,254. Compute the payback for the expansion project. Round to one decimal place. (1) ÷ (2) = Payback ÷ = years 1: Data Table Number of additional skiers per day 122 skiers Average number of days per year that weather conditions allow skiing at Root Valley 151 days Useful life of expansion (in years) 11 years Average cash spent by each skier per day $243 Average variable cost of serving each skier per day 86 Cost of expansion 12,500,000 Discount rate 10% (1) Amount invested Expected annual net cash inflow Expected useful life (2) Amount invested Expected annual net cash inflow Expected useful life
Consider how Root Valley Waterfall Park Lodge could use capital budgeting to decide whether the $12,500,000 Waterfall Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion: 1(Click the icon to view the estimates.) Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $950,000 at the end of its eleven-year life. The average annual net cash inflow from the expansion is expected to be $2,892,254. Compute the payback for the expansion project. Round to one decimal place. (1) ÷ (2) = Payback ÷ = years 1: Data Table Number of additional skiers per day 122 skiers Average number of days per year that weather conditions allow skiing at Root Valley 151 days Useful life of expansion (in years) 11 years Average cash spent by each skier per day $243 Average variable cost of serving each skier per day 86 Cost of expansion 12,500,000 Discount rate 10% (1) Amount invested Expected annual net cash inflow Expected useful life (2) Amount invested Expected annual net cash inflow Expected useful life
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 2STP
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Question
Consider how
Root
Valley
Waterfall
Park Lodge could use capital budgeting to decide whether the
$12,500,000
Waterfall
Park Lodge expansion would be a good investment. Assume
Root
Valley's managers developed the following estimates concerning the expansion:1(Click
the icon to view the estimates.)Assume that
cash inflow from the expansion is expected to be
Root
Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of
$950,000
at the end of its
eleven-year
life. The average annual net $2,892,254.
Compute the payback for the expansion project. Round to one decimal place.
|
(1)
|
÷
|
(2)
|
=
|
Payback
|
|
|
|
÷
|
|
=
|
|
years
|
1: Data Table
|
Number of additional skiers per day
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122 skiers
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|---|---|
|
Average number of days per year that weather conditions allow skiing at Root Valley
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151 days
|
|
Useful life of expansion (in years)
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11 years
|
|
Average cash spent by each skier per day
|
$243
|
|
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86
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|
Cost of expansion
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12,500,000
|
|
Discount rate
|
10%
|
(1)
Amount invested
Expected annual net cash inflow
Expected useful life
(2)
Amount invested
Expected annual net cash inflow
Expected useful life
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