Refer to the Cherry Valley Data Set. Assume that Cherry Valley uses the straight-line depreciation method and expects the lodge expansion to have no residual value at the end of its nine-year life. The company has already calculated the average annual net cash inflow per year to be $2,174,040 and the NPV of the expansion to be $2,923,096. What is the project’s IRR? Is the investment attractive? Why?
Cherry Valley Data Set.
Assume that Cherry Valley’s managers developed the following estimates concerning the expansion (all numbers assumed):
Number of additional skiers per day.................................................. 122
Average number of days per year that weather
conditions allow skiing at Cherry Valley ..................................... 162
Useful life of expansion (in years)....................................................... 9
Average cash spent by each skier per day........................................... $ 245
Average variable cost of serving each skier per day............................ $ 135
Cost of expansion .............................................................................. $10,000,000
Discount rate...................................................................................... 10%