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Accounting 5

In: Business and Management

Submitted By Shawissell
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Abstract This paper shall provide pricing information for the ski lodge that is looking to add some chairlifts to the lodge. The paper also provides the information for coasting before taxes with a return tax rate of 14%. It shall give the NPV of the new lifts and after the calculation it will give the company an opinion rather to build the addition or not. Then it goes on with information about the after tax required rate of return was 8% and income tax rate is 40%, and MACRS recovery period is 10 years. Later it tells the subjective factors that would affect the investment decision.

Introduction Located in the Wasatch Mountains of Utah, Deer Valley Ski lodge is looking to build some additions to lodge. They need some help to figure out the prices before taxes. The lift is expected to allow 300 skiers onto the slopes. Since there are only 40 days per year needed for the extra room. The wants to take in consideration that it will sale all 300 tikes all 40 days. This would be at $500 each day to run for 200 days when the facility is open. The tickets will be $55 for the day, and the lift has an economic life of 20 years. To figure this you have to do the following:
Assuming the before-tax rate of return is 40%
PV Cash inflows: 300 tickets * 40 days *$55 each = $660k; PV factor 2 = 6.6231 present value =$660k * 6.6231 = $4,371,246. At one time cost price for lift ‒ $2.0M Prep & Install ‒ $1.3M with total one time outflow ‒ $3.3M.
The PV Cash outflow: Cost of running lift $500 * 200 days = ‒$100k; 300 tickets * 40 days * $5 per rider = ‒ $60k PV factor like before 6.6231, Present Value = ‒$160k * 6.6231 = ‒ 1,059,696, which puts the Net Present Value = $4,371,246 ‒ $3.3M ‒ $1,059,696 = $11,550 then it makes the net present value positive not including project (Wild & Shaw, 2012). Now looking at the calculations for after-tax required rate of…...

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