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ACCT 310 Managerial Accounting Unit 5 IP Template Name: Determine the total investment $2,000,000 + $1,300,000 = $3,300,000 for one (1) lift cost of a lift Prep & install Total investment 300 X 40 X $55 = $660,000 (anticipated inflow from the # of skiers Days used cost of lift ticket annual cash inflow lift tickets based on total skiers) per day Calculate the annual cash outflow 200 X $500 = $100,000 (projected outflow based on # days to Cost to run annual cash outflow cost to run the lift) run lift per day PV of cash flows @ 14% ( $660,000 - $100,000 ) X 6.623 = $3,708,880 annual cash annual cash PV of an PV of cash inflow outflow annuity of $1 flows @ ___% NPV $3,708,880 - $3,300,000 = $408,880 PV of cash total NPV flows @ ____% investment Recommendation: 2. Assume that the after-tax required rate of return 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 lift will be a profitable investment. Show calculations to support your answer. Calculate the net after-tax cash flow $560,000 X 40% = $224,000 net cash flow 1-tax rate after-tax cash flow PV of after-tax cash flows @8% $224,000 X 0.7059 = $158,121.60 after-tax PV of an PV of after-tax cash flow annuity of $1 cash flows @___% PV of tax savings $3,300,000 X 40%X 0.7059 = $931,788 total tax rate factor PV of tax savings investment NPV after-tax $158,122 + $931,788 - $3,300,000 = ### PV of after-tax PV of tax total NPV after-tax cash flows @___ savings investment Recommendation: 3. What subjective factors would affect the investment decision? ... View Full Document

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