Assume that Wolf Valley's managers developed the following estimates concerning a planned expansion to its Brook Park
Question:
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.
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta