The Summit at Crystal Mountain is a small ski resort located just outside Mount Rainier, Washington;...

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The Summit at Crystal Mountain is a small ski resort located just outside Mount Rainier, Washington; approximately 100 miles from Seattle. The resort consists of slopes that appeal to skiers of several different skill levels, though none of the slopes are difficult enough to appeal to the most highly skilled skiers. For a modest $45 lift fee, resort guests are allowed unlimited access to any of the resort's slopes for the day. In recent years, other regional ski slopes in northern Washington and in Oregon have steadily eroded attendance at The Summit at Crystal Mountain. Resort attendance has dropped from 250,000 in 2014 to 190,000 for the recently completed 2021 season. Current projections are that the trend will continue, dropping attendance to 180,000 in 2022, and 175,000 in 2023, before leveling off at 170,000 for 2024 and beyond. Following completion of the 2021 season, The Summit at Crystal Mountain hired a market research company to conduct a survey aimed at uncovering the primary reasons for the decline in resort attendance. The survey revealed that many teens preferred other resorts because of new modern chair lifts that had been added to each resort. The market research firm strongly urged The Summit at Crystal Mountain to consider purchasing a new set of state-of-the-art chair lifts of its own. In addition to the $20,000 The Summit at Crystal Mountain has spent on the survey; a new set of chair lifts would initially cost the resort $3,000,000. The new lifts would be ready for the opening of the 2022 season. The resort's current lifts were purchased at the end of the 2017 season for $400,000. They are being depreciated on a straight-line basis over an 8-year life. However, The Summit at Crystal Mountain anticipates that their useful life could be stretched to 10 years (if not replaced) at which time they could be sold for $50,000. Each year the resort spends $20,000 on maintenance of the old chair lifts. If the new lifts are purchased, The Summit at Crystal Mountain would sell its current lifts immediately. However, the expected sales price would still be just $50,000. If purchased, the new lifts are expected to be depreciated on a straight-line basis over a six- year useful life. The Summit at Crystal Mountain believes that the new lifts could be sold for $100,000 at the end of their 6-year useful life. Annual maintenance expenses are expected to be $17,000. The Summit at Crystal Mountain believes that if the new lifts are purchased, resort attendance will remain constant at 2021 levels for the foreseeable future. In addition, they believe that the new lifts will allow them to increase the resort's lift ticket price to $60 for the 2022 season through the end of the new lift's useful life (2027). The Summit at Crystal Mountain maintains a minimum balance of $25,000 in net working capital accounts (e.g., inventory, accounts receivable and accounts payable). That amount will need to be $50,000 if new lifts are purchased. The resort keeps critical staff members who maintain and operate machinery. These workers earn $40,000 per season and the resort must retain 40 of these workers with the new lifts or 15 if they stick to the old lifts. The resort must also hire 1 service industry worker per 300 yearly guests at a cost of $12,000 per worker, per season. The discount rate on the project is 12% and the resort's tax rate is 34%. Conduct an analysis to assist The Summit at Crystal Mountain in deciding whether to purchase the new lifts. Assume that all cash flows are at year-end. That is, if The Summit at Crystal Mountain purchases the new lifts, the purchase will take place at the end of 2021. Rubric Item 1. Cash Flows from Operations 2. CFFA and other statement items 3. Spreadsheet Formatting 4. Executive Summary 5. NPV / IRR / MIRR/ Payback period 6. Scenario and Sensitivity Analysis Points Earned up to 10 points up to 10 points up to 20 points up to 20 points 1 points each up to 11 points The Summit at Crystal Mountain is a small ski resort located just outside Mount Rainier, Washington; approximately 100 miles from Seattle. The resort consists of slopes that appeal to skiers of several different skill levels, though none of the slopes are difficult enough to appeal to the most highly skilled skiers. For a modest $45 lift fee, resort guests are allowed unlimited access to any of the resort's slopes for the day. In recent years, other regional ski slopes in northern Washington and in Oregon have steadily eroded attendance at The Summit at Crystal Mountain. Resort attendance has dropped from 250,000 in 2014 to 190,000 for the recently completed 2021 season. Current projections are that the trend will continue, dropping attendance to 180,000 in 2022, and 175,000 in 2023, before leveling off at 170,000 for 2024 and beyond. Following completion of the 2021 season, The Summit at Crystal Mountain hired a market research company to conduct a survey aimed at uncovering the primary reasons for the decline in resort attendance. The survey revealed that many teens preferred other resorts because of new modern chair lifts that had been added to each resort. The market research firm strongly urged The Summit at Crystal Mountain to consider purchasing a new set of state-of-the-art chair lifts of its own. In addition to the $20,000 The Summit at Crystal Mountain has spent on the survey; a new set of chair lifts would initially cost the resort $3,000,000. The new lifts would be ready for the opening of the 2022 season. The resort's current lifts were purchased at the end of the 2017 season for $400,000. They are being depreciated on a straight-line basis over an 8-year life. However, The Summit at Crystal Mountain anticipates that their useful life could be stretched to 10 years (if not replaced) at which time they could be sold for $50,000. Each year the resort spends $20,000 on maintenance of the old chair lifts. If the new lifts are purchased, The Summit at Crystal Mountain would sell its current lifts immediately. However, the expected sales price would still be just $50,000. If purchased, the new lifts are expected to be depreciated on a straight-line basis over a six- year useful life. The Summit at Crystal Mountain believes that the new lifts could be sold for $100,000 at the end of their 6-year useful life. Annual maintenance expenses are expected to be $17,000. The Summit at Crystal Mountain believes that if the new lifts are purchased, resort attendance will remain constant at 2021 levels for the foreseeable future. In addition, they believe that the new lifts will allow them to increase the resort's lift ticket price to $60 for the 2022 season through the end of the new lift's useful life (2027). The Summit at Crystal Mountain maintains a minimum balance of $25,000 in net working capital accounts (e.g., inventory, accounts receivable and accounts payable). That amount will need to be $50,000 if new lifts are purchased. The resort keeps critical staff members who maintain and operate machinery. These workers earn $40,000 per season and the resort must retain 40 of these workers with the new lifts or 15 if they stick to the old lifts. The resort must also hire 1 service industry worker per 300 yearly guests at a cost of $12,000 per worker, per season. The discount rate on the project is 12% and the resort's tax rate is 34%. Conduct an analysis to assist The Summit at Crystal Mountain in deciding whether to purchase the new lifts. Assume that all cash flows are at year-end. That is, if The Summit at Crystal Mountain purchases the new lifts, the purchase will take place at the end of 2021. Rubric Item 1. Cash Flows from Operations 2. CFFA and other statement items 3. Spreadsheet Formatting 4. Executive Summary 5. NPV / IRR / MIRR/ Payback period 6. Scenario and Sensitivity Analysis Points Earned up to 10 points up to 10 points up to 20 points up to 20 points 1 points each up to 11 points

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ANSWER To assist The Summit at Crystal Mountain in deciding whether to purchase the new lifts we will conduct a comprehensive financial analysis We wi... View the full answer