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Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Hunter Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable :ost of serving each skier per day Cost of expansion 121 skiers 142 days 7 years 241 83 11,000,000 10% Discount rate

Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Hunter Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable :ost of serving each skier per day Cost of expansion 121 skiers 142 days 7 years 241 83 11,000,000 10% Discount rate

FINANCIAL ACCOUNTING
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

Using the payback and accounting rate of return methods to make capital investment decisions

Consider how Hunter Valley Snow Park Lodge could use capital budgeting to decide whether the $11,000,000 Snow Park Lodge expansion would be a good investment. Assume Hunter Valley’s managers developed the following estimates concerning the expansion:

Assume that Hunter Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its seven-year life.

Requirements

  1. Compute the average annual net cash inflow from the expansion.
  2. Compute the average annual operating income from the expansion.
Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Hunter Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable :ost of serving each skier per day Cost of expansion 121 skiers 142 days 7 years 241 83 11,000,000 10% Discount rate
Transcribed Image Text:Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Hunter Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable :ost of serving each skier per day Cost of expansion 121 skiers 142 days 7 years 241 83 11,000,000 10% Discount rate
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