Refer to the Hunter Valley Snow Park Lodge expansion project in Short Exercise S26-4. Compute the payback

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Refer to the Hunter Valley Snow Park Lodge expansion project in Short Exercise S26-4. Compute the payback for the expansion project. Round to one decimal place.

Short Exercise S26-4,

Consider how Hunter Valley Snow Park Lodge could use capital budgeting to decide whether the $11,000,000 Snow Park Lodge expansion would be a good investment. Assume Hunter Valley's managers developed the following estimates concerning the expansion:

Number of additional skiers per day ................................................ 121 skiers

Average number of days per year that weather conditions

allow skiing at Hunter Valley ....................................................... 142 days

Useful life of expansion (in years) ................................................... 7 years

Average cash spent by each skier per day ........................................... $ 241

Average variable cost of serving each skier per day ................................... 83

Cost of expansion ................................................................ 11,000,000

Discount rate .............................................................................. 10%

Assume that Hunter Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its seven-year life.

Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the...
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Horngrens Accounting

ISBN: 978-0134674681

12th edition

Authors: Tracie L. Miller nobles, Brenda L. Mattison, Ella Mae Matsumura

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