Consider how Kyler Valley River Park Lodge could use capital budgeting to decide whether the $12,000,000 River Park Lodge expansion would be a goodinvestment. Assume Kyler Valley's managers developed the following estimates concerning the expansion:(Click the icon to view the estimates.)Assume that Kyler Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of itsten-year life. The average annual operating income from the expansion is $1,773,400 and the depreciation has been calculated as $1,115,000.Calculate the ARR. Round to two decimal placesARRData Table120 skiersNumber of additional skiers per dayAverage number of days per year that weather conditionsallow skiing at Kyler Valley145 daysUseful life of expansion (in years)10 years244Average cash spent by each skier per day78Average variable cost of serving each skier per day12,000,000Cost of expansion8%Discount rate

Accounting Rate of Return: Accounting rate of return is the rate which covers the cost of the amount…

Answered: Calculate the ARR. Round to two decimal…

Business

Accounting

Calculate the ARR. Round to two decimal places.

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

100%

Consider how Kyler Valley River Park Lodge could use capital budgeting to decide whether the $12,000,000 River Park Lodge expansion would be a good
investment. Assume Kyler Valley's managers developed the following estimates concerning the expansion:
(Click the icon to view the estimates.)
Assume that Kyler Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its
ten-year life. The average annual operating income from the expansion is $1,773,400 and the depreciation has been calculated as $1,115,000.
Calculate the ARR. Round to two decimal places
ARR
Data Table
120 skiers
Number of additional skiers per day
Average number of days per year that weather conditions
allow skiing at Kyler Valley
145 days
Useful life of expansion (in years)
10 years
244
Average cash spent by each skier per day
78
Average variable cost of serving each skier per day
12,000,000
Cost of expansion
8%
Discount rate

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