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Deer Valley Lodge

# Deer Valley Lodge - Solutions Guide Please do not present...

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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 Deer Valley cost \$55 a day. The new lift has an economic life of 20 years. 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.

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