Assume that Wolf Valley's managers developed the following estimates concerning a planned expansion to its Brook Park Lodge (all numbers assumed):

Number of additional skiers per day ..................................................................................125

Average number of days per year that weather conditions allow skiing at Wolf Valley 160

Useful life of expansion (in years) ..........................................................................................8

Average cash spent by each skier per day ..................................................................... $240

Average variable cost of serving each skier per day. ......................................................$ 142

Cost of expansion ......................................................................................................$ 8,000,000

Discount rate ..........................................................................................................................12%

Assume that Wolf Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $1,000,000 at the end of its eight-year life. It has already calculated the average annual net cash inflow per year to be $1,960,000.

Answer rating: 100% (QA)

PVIFA of Net annual cash flow 1960000 PVIFA 12 8 19600004968 973728... View the full answer