vould be a good investment. Assume Root 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.) The internal rate of return (IRR) of the expansion is Data table ▼ 10-12% 12-14% 15-16% 16-18% Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Root 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 $ - X 122 skiers 149 days 9 years 240 80 13,000,000 8% Reference Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 Period 18 Period 19 Period 20 Period 21 (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 IRR? Is the investment attractive? Why or why not? Present Value of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18 % 20 % 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.951 0.906 0.863 0.822 0.784 0.747 0.713 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 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022 X
vould be a good investment. Assume Root 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.) The internal rate of return (IRR) of the expansion is Data table ▼ 10-12% 12-14% 15-16% 16-18% Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Root 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 $ - X 122 skiers 149 days 9 years 240 80 13,000,000 8% Reference Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 Period 18 Period 19 Period 20 Period 21 (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 IRR? Is the investment attractive? Why or why not? Present Value of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18 % 20 % 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.951 0.906 0.863 0.822 0.784 0.747 0.713 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 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.397 0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022 X
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
Problem 1PS
Related questions
Question
Transcribed Image Text:Consider how Root Valley River Park Lodge could use capital budgeting to decide whether the $13,000,000 River Park Lodge expansion
would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion:
(Click the icon to view the estimates.)
(Click the icon to view additional information.)
The internal rate of return (IRR) of the expansion is
Data table
More info
example
10-12%
Number of additional skiers per day
Average number of days per year that weather conditions
allow skiing at Root 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
Get more help.
12-14%
Print
15-16%
16-18%
S
Done
122 skiers
149 days
Assume that Root Valley uses the straight-line depreciation method and expects
the lodge expansion to have no residual value at the end of its nine-year life. The
project is expected to have an average annual net cash inflow of $2,908,480. The
NPV of the expansion is expected to be $5,169,275.
9 years
240
80
13,000,000
8%
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
(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 IRR? Is the investment attractive? Why or why not?
Present Value of $1
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
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
0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397
0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368
0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340
0.861 0.743 0.642 0.555 0.481 0.417 0.362
Print
0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135
0.356 0.319 0.257 0.208 0.187 0.168 0.137 0.112
0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093
0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078
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
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
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
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
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
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
0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.011 0.005 0.004 0.003 0.001 0.001
0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.003 0.001 0.001 0.001
Done
X
ck answer
Transcribed Image Text:Consider how Root Valley River Park Lodge could use capital budgeting to decide whether the $13,000,000 River Park Lodge expansion
would be a good investment. Assume Root 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.)
The internal rate of return (IRR) of the expansion is
Data table
Number of additional skiers per day
Average number of days per year that weather conditions
allow skiing at Root 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
example
Get more help.
Print
$
Done
122 skiers
149 days
Assume that Root Valley uses the straight-line depreciation method and expects
the lodge expansion to have no residual value at the end of its nine-year life. The
project is expected to have an average annual net cash inflow of $2,908,480. The
NPV of the expansion is expected to be $5,169,275.
9 years
240
80
13,000,000
8%
X
Reference
Periods
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Period 13
Period 14
Period 15
Period 16
Period 17
Period 18
Period 19
Period 20
Period 21
Period 22
Period 23
Period 24
Period 25
Period 26
Period 27
Period 28
Period 29
Period 30
Period 40
Period 50
(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 IRR? Is the investment attractive? Why or why not?
1% 2%
0.990 0.980
1.970 1.942
3%
0.971
1.913
2.829
3.902 3.808 3.717
4.853 4.713 4.580
2.941 2.884
16% 18% 20%
0862 0.847 0.833
1.605 1.566 1.528
2.246 2.174 2.106
2.798 2.690 2.589
3.274 3.127 2.991
5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326
6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.564 4.288 4.160 4.039 3.812 3.605
7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.639 4.487 4.344 4.078 3.837
8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.328 4.946 4.772 4.607 4.303 4.031
9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.019 4.833 4.494 4.192
10.368 9.787 9.253 8.760 8.306 7.887 7.499
11.255 10.575 9.954 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 8.851 8.313 7.824 6.974 6.265 5.954 5669 5.162 4.730
15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.120 6.373 6.047 5.749 5.222 4.775
16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.250 6.467 6.128 5.818 5.273 4.812
17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4.844
18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.469 6.623 6.259 5.929 5.353 4.870
18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 7.562 6.687 6.312 5.973 5.384 4.891
19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772 7.645 6.743 6.359 6.011 5.410 4.909
20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 7.718 6.792 6.399 6.044 5.432 4.925
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
7.784 6.835 6.434 6.073 5.451 4.937
7.843 6.873 6.464 6.097 5.467 4.948
Present Value of Ordinary Annuity of $1
5% 6% 7% 8% 9% 10% 12% 14% 15%
0.952 | 0.943 0.935 0.926 0,917 0.909 0.893 0.877 0.870
1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626
2.723 2.673 2.624 2.577 2.531 2.487 2.402 2.322 2.283
3.546 3.465 3.387 3.312 3.240 3.170
4.329 4.212 4.100 3.993 3.890 3.791
3.037 2.914 2.855
3.605 3.433 3.352
4%
0.962
1.886
2.775
3.630
4.452
7.139 6.805 6.495 5.938 5.453 5.234 5.029 4.656 4.327
7.536 7.161 6.814 6.194 5.660 5.421 5.197 4.793 4.439
7.904 7.487 7.103 6.424 5.842 5.583 5.342 4.910 4.533
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
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 6.118 5.480 4.956
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 6.136 5.492 4.964
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 6.152 5.502 4.970
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 6.166 5.510 4.975
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 6.177 5.517 4.979
32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.244 7.105 6.642
6.233
5.548 4.997
39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 8.304 7.133 6.661 6.246 5.554 4.999
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