Deer Valley Lodge

Abstract

The purpose of this assignment is to appraise a project using various financial appraisal techniques. Using before-tax NPV, we recommended that the proposed life project will be a good investment since its yielding positive NPV of $408,953. Subsequently, we also found out that the project would be more profitable on the basis of after tax NPV and will yield $930,686. Apart from qualitative aspect, there are also subjective factors life of the project, economic factors, etc which can affect the decision making process.

Deer Valley Lodge

Part 1

Computations of the before-tax NPV of the new lift and advise, whether adding the lift will be a profitable investment or not

A dollar today is not worth a dollar tomorrow, it will have less value in the future. So in a Business the cash are not received on the first day, but they are received over a period of many year in different tranches. Thus, NPV is the way of bringing that cash to base year for checking its present value (Hansen & Mowen, 2000, pp. 719). The lodge is trying to find out the total outlay associated with running and installing the lift are lower or higher than the sum additional revenue the new ski lift is going to generate, all adjusted to take into account the time value of money. The new lift will add a value of $408,953, thus the investment is profitable.

Initially invested by the company = $3,300,000 (1,300,000 Slope and lift preparation plus $2,000,000 one chairlift cost)

Future cash inflows = $660,000 ($55 cost for lift ticket x 300 lift tickets x 40 days)

Future cash outflows = $100,000 (200 days of entire operation x $500 cost)

Net cash flows for the company = $560,000 ($660,000 (in - flows) - $100,000 (out - flows)

PV of net cash flows: = ...