ACG Unit 5 IP - 1 Unit 5 Individual Project Lorraine Huff...

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1 Unit 5 Individual Project Lorraine Huff AIU Online April 25, 2010
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2 1. Assume that the before-tax required 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. Initial Cost of life $3.3 million Ticket Price $55.00 Cost of operation $500/day Days open per year 2000 *300 extra tickets for 40 days per year because of new investment. $500 X 200 $100,000 = annual cost 300 X 55 $16,600 X 40 = $660,000 annual revenue 20 Years at 14% $660,000 $560,000 $3,708,936 -$100,000 X 6.6231 - $3,300,000 $560,000 $3,708,936 $408,936 Before-tax NVP = $408,936. With these calculations, it would absolutely be a profitable investment for Deer Valley. 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
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ACG Unit 5 IP - 1 Unit 5 Individual Project Lorraine Huff...

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