Consider how McKnight Valley Brook Park Lodge could use capital budgeting to decide whether the $11,000,000 Brook Park Lodge expansion would be a good investment. Assume McKnight Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) i (Click the icon to view additional information.) Calculate the net present value of the expansion. (Enter any factor amounts to three decimal places, X.XXX. Round to the nearest whole dollar.) Net Cash Annuity PV Factor PV Factor (i-14%, Inflow (i-14%, n=10) n=10) Present Value Years Years 1-10 Year 10 Present value of annuity Present value of residual value Total PV of cash inflows Year 0 Initial investment Net present value of expansion (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) What is the project's NPV (round to nearest dollar)? Is the investment attractive? Why or why not? Data table Number of additional skiers per day Average number of days per year that weather conditions allow skiing at McKnight 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 More info A Print $ Done 114 skiers 152 days Assume that McKnight Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $950,000 at the end of its ten-year life. They have already calculated the average annual net cash inflow per year to be $2,807,136. 10 years 241 79 11,000,000 14%
Consider how McKnight Valley Brook Park Lodge could use capital budgeting to decide whether the $11,000,000 Brook Park Lodge expansion would be a good investment. Assume McKnight Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) i (Click the icon to view additional information.) Calculate the net present value of the expansion. (Enter any factor amounts to three decimal places, X.XXX. Round to the nearest whole dollar.) Net Cash Annuity PV Factor PV Factor (i-14%, Inflow (i-14%, n=10) n=10) Present Value Years Years 1-10 Year 10 Present value of annuity Present value of residual value Total PV of cash inflows Year 0 Initial investment Net present value of expansion (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) What is the project's NPV (round to nearest dollar)? Is the investment attractive? Why or why not? Data table Number of additional skiers per day Average number of days per year that weather conditions allow skiing at McKnight 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 More info A Print $ Done 114 skiers 152 days Assume that McKnight Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $950,000 at the end of its ten-year life. They have already calculated the average annual net cash inflow per year to be $2,807,136. 10 years 241 79 11,000,000 14%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Concept explainers
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
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Transcribed Image Text:Consider how McKnight Valley Brook Park Lodge could use capital budgeting to decide whether the $11,000,000 Brook Park Lodge
expansion would be a good investment. Assume McKnight Valley's managers developed the following estimates concerning
the expansion:
(Click the icon to view the estimates.)
(Click the icon to view additional information.)
Calculate the net present value of the expansion. (Enter any factor amounts to three decimal places, X.XXX. Round to the nearest whole dollar.)
Net Cash Annuity PV Factor PV Factor (i=14%,
Inflow (i=14%, n=10)
n=10)
Years
Years 1-10
Year 10
Year 0
example
Present value of annuity
Present value of residual value
Total PV of cash inflows
Initial investment
Net present value of expansion
Get more help.
C
Present Value
(Click the icon to view Present Value of $1 table.)
(Click the icon to view Present Value of Ordinary Annuity of $1 table.)
What is the project's NPV (round to nearest dollar)? Is the investment attractive? Why or why not?
Data table
Number of additional skiers per day
Average number of days per year that weather conditions
allow skiing at McKnight 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
More info
Print
Done
S
Clear all
114 skiers
152 days
10 years
241
79
Assume that McKnight Valley uses the straight-line depreciation method and
expects the lodge expansion to have a residual value of $950,000 at the end of its
ten-year life. They have already calculated the average annual net cash inflow per
year to be $2,807,136.
11,000,000
14%
X
X
Check answer
Transcribed Image Text:ECON 122 Principles of Accounting II (02.2579) SP2023
Reference
Periods 1% 2%
Period 1
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Period 7 6.728
Period 8
7.652
8.566
9.471
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Perind 40
Help me solve this
3% 4% 5% 6% 7%
0.990 0.980 0.971 0.962 0.952 0.943 0.935
1.970
1.942 1.913 1.886 1.859 1.833 1.808
2.941 2.884 2.829 2.775 2.723 2.673 2.624
3.902 3.808 3.717 3.630 3.546 3.465 3.387
4.853 4.713 4.580 4.452 4.329 4.212 4.100
5.795 5.601 5417 5.242
6.472 6.230 6.002
7.325 7.020
6.733
8.162 7.786 7.435
8.983 8.530 8.111
Present value of Ordinary Annuity or $1
18% 20%
8% 9% 10% 12% 14% 15% 16%
0.926 0.917 0.909 0.893
0.877
0.870
0.862
0.847
0.833
1.783 1.759 1.736 1.690 1.647 1.626 1.605 1.566 1.528
2.577 2.531 2.487 2.402 2.322 2.283 2.246 2.174 2.106
3.312 3.240 3.170 3.037 2.914 2.855 2.798 2.690 2.589
3.993 3.890 3.791 3.605 3.433 3.352 3.274 3.127 2.991
5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326
5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.160 4.039
3.812
6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078
7.108 6.802 6.515 6.247 5.995 5.759
7.722 7.360 7.024 6.710 6.418 6.145
3.605
3.837
4.031
5.328 4.946 4.772 4.607 4.303
5.650 5.216 5.019 4.833
4.494 4.192
5.234 5.029 4.656 4.327
5.421 5.197 4.793 4.439
5.583 5.342 4.910 4.533
7.139 6.805 6.495 5.938
5.453
7.536 7.161 6.814 6.194 5.660
7.904 7.487 7.103 6.424 5.842
8.244 7.786 7.367 6.628 6.002 5.724 5.468 5.008 4.611
8.559 8.061 7.606 6.811 6.142 5.847 5.575 5.092 4.675
8.851 8.313 7.824 6.974 6.265 5.954 5.669 5.162 4.730
9.122 8.544 8.022 7.120 6.373 6.047 5.749 5.222 4.775
9.372 8.756 8.201 7.250 6.467 6.128 5.818 5.273 4.812
9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4.844
9.818 9.129 8.514 7.469 6.623 6.259 5.929 5.353 4.870
10.368 9.787 9.253
11.255 10.575 9.954
8.760 8.306 7.887 7.499
9.385 8.863 8.384 7.943
12.134 11.348 10.635 9.986 9.394 8.853 8.358
13.004 12.106 11.296 10.563 9.899 9.295 8.745
13.865 12.849 11.938 11.118 10.380 9.712 9.108
14.718 13.578 12.561 11.652 10.838 10.106 9.447
15.562 14.292 13.166 12.166 11.274 10.477 9.763
16.398 14.992 13.754 12.659 11.690 10.828 10.059
17.226 15.678 14.324 13.134 12.085 11.158 10.336
18.046 16.351 14.877 13.590 12.462 11.470 10.594
7.562 6.687 6.312
7.645 6.743 6.359
7.718 6.792 6.399
7.784 6.835 6.434
7.843 6.873 6.464
22.795 20.121 17.877 15.983 14.375 13.003 11.826 10.810 9.929 9.161 7.896 6.906 6.491
23.560 20.707 18.327 16.330 14.643 13.211 11.987 10.935 10.027 9.237 7.943 6.935 6.514
24.316 21.281 18.764 16.663 14.898 13.406 12.137 11.051 10.116 9.307 7.984 6.961 6.534
25.066 21.844 19.188 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.022 6.983 6.551
25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.055 7.003 6.566
32 835 27 355 23 115 19 793 17 159 15.046| 13.332 | 11 925 |10 757 97798244
7.105 6.642
18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649
19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772
20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883
21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985
22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077
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5.973 5.384 4.891
6.011 5.410 4.909
6.044 5.432 4.925
6.073 5.451 4.937
6.097 5.467 4.948
6.118 5.480 4.956
6.136 5.492 4.964
6.152 5.502 4.970
6.166 5.510 4.975
6.177 5.517 4.979
6.233 5.548 4907
lor
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
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1% 2% 3% 4% 5% 6% 7%
0.990 0.980 0.971 0.962 0.952 0.943 0.935
0.980 0.961 0.943 0.925 0.907 0.890 0.873
0.971 0.942 0.915 0.889 0.864 0.840 0.816
0.961 0.924 0.888 0.855 0.823 0.792 0.763
0.951 0.906 0.863 0.822 0.784 0.747 0.713
Present Value of $1
8% 9% 10% 12% 14% 15% 16% 18% 20%
0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833
0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694
0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579
0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482
0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402
0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335
0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.452 0.400 0.376 0.354 0.314
0.279
0.923 0.853 0.789 0.731 0.677
0.627 0.582
0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233
0.914 0.837 0.766 0.703 0.645
0.592 0.544
0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194
0.905 0.820 0.744 0.676 0.614
0.558 0.508 0.463 0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162
0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0215 0.195 0.162 0.135
0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112
0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093
0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078
0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065
0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054
0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045
0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038
0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031
0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026
0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022
0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018
0.795 0.634 0.507 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015
0.788 0.622 0.492 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.066 0.043 0.035 0.028 0.019 0.013
0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.059 0.038 0.030 0.024 0.016 0.010
Yann Tamdem
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Period 26 0.772 0.598 0.464 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.053 0.033 0.026 0.021 0.014 0.009
Period 27 0.764 0.586 0.450 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.047 0.029 0.023 0.018 0.011 0.007
Period 28 0.757 0.574 0.437 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006
Period 29 0.749 0.563 0.424 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.037 0.022 0.017 0.014 0.008 0.005
Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.033 0.020 0.015 0.012 0.007 0.004
Deriod 100.672 0153 0307 0208 | 0112 0.007 0.067 0.016 0.032 0.022 0.011 0.005 0.001 0.003. 0.001 0.001
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