15% 1 2 3 Internal Rate of Return Method for a Service Company The Riverton Company, announced a $429,774 million expansion of lodging properties, skills, and terrain in Park City, Utah. Assume that this Investment is estimated to produce $166,000 million in equal annual cash flows for each of the first four years of the project life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 20% 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Determine the expected internal rate of return of this project for four years, using the present value of an annuity of 1 table above. 5 6 9 9 b. Identify the uncertainties that could reduce the internal rate of return of this project? Warm weather conditions, or no snow Recessionary economic conditions that reduce the demand for ski holidays Competitor property improvements that siphon demand from the project Increased fuel costs that increase the cost of travel to ski resorts, thus reducing demand from nonlocal patrons pnnuity of $1 table above. Industry overbuilding that causes a price war to maintain volume All of these