klogan
Apr 21, 2007, 05:23 PM
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $ 2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the extra capacity will be needed. Assume that deer park will sell all 300 lift tickets on those 40 days. Running the new lift will cost $500 a day for the entire 200 days the lodge is open. Assume that the lift tickets at deep valley cost $ 55 a day and the added cash expense for each skier a day are $5. The new lift has an economic life of 20 years. 1). Assume that the before-tax rate of return for deer valley is 14%. Compute the before tax NPV of the new lift and advise the managers of deer valley about whether adding the lift will be a profitable investment. Show calculations to support your answer.2). Assume that after-tax required rate for deer valley is 8%, the income tax rate is 40%,and the MACRS recovery period is 10 years. Compute the after-tax NPV of the new lift and advise the managers of deer valley about whether adding the ligt will be profitable investment. Show calculations to support your answer.