Assume that Cherry Valley's managers developed the following estimates concerning a planned expansion to its River Park Lodge (all numbers assumed): Number of additional skiers per day. Average number of days per year that weather conditions allow skiing at Cherry Valley.. Useful life of expansion (in years). Average cash spent by each skier per day $ Average variable cost of serving each skier per day. $ Cost of expansion.... $ Discount rate 122 158 9 237 138 8,500,000 14% 1. 2. Compute the average annual net cash inflow from the expansion. Compute the average annual operating income from the expansion. Compute the payback period. 3. 4. Compute the ARR. Print Done

Assume that Cherry Valley's managers developed the following estimates concerning a planned expansion to its River Park Lodge (all numbers assumed): Number of additional skiers per day. Average number of days per year that weather conditions allow skiing at Cherry Valley.. Useful life of expansion (in years). Average cash spent by each skier per day $ Average variable cost of serving each skier per day. $ Cost of expansion.... $ Discount rate 122 158 9 237 138 8,500,000 14% 1. 2. Compute the average annual net cash inflow from the expansion. Compute the average annual operating income from the expansion. Compute the payback period. 3. 4. Compute the ARR. Print Done

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Consider how Cherry Valley, a popular ski resort, could use capital budgeting to
decide whether the $8.5 million River Park Lodge expansion would be a good
investment.
(Click the icon to view the expansion estimates.)
Assume that Cherry Valley uses the straight-line depreciation method and
expects the lodge expansion to have a residual value of $750,000 at the
end of its nine-year life.
Read the requirements.

Data table
Assume that Cherry Valley's managers developed the following
estimates concerning a planned expansion to its River Park Lodge (all
numbers assumed):
Number of additional skiers per day...
Average number of days per year that weather
conditions allow skiing at Cherry Valley.
Useful life of expansion (in years).
$
Average cash spent by each skier per day.
Average variable cost of serving each skier per day . $
Cost of expansion.
$
Discount rate.......
122
158
9
237
138
8,500,000
14%
Requirements
1.
Compute the average annual net cash inflow from the expansion.
Compute the average annual operating income from the expansion.
3. Compute the payback period.
2.
4. Compute the ARR.
Print
Done

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