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. 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. 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. 3. What subjective factors would affect the investment decision? • The amount of the investment-

• The gross sales of tickets-
• The Total expenses-
• The yearly net income from investments

1.Investment = $2,000,000 + $1,300,000 = $3,300,000
Annual cash inflow = 300 skiers x 40 days x $55/skier-day = $660,000 Annual cash outflow
= (200 days x $500/day)+($5/skier-day x 300 x 40) = $160,000

PV of cash flows @ 14% = ($660,000 - $160,000) x 6.6231 = $3,311,550

NPV = $3,311,550 - $3,300,000 = $11,550

The new lift will create value of $11,550, so it is a profitable investment.

2.After-tax cash flows = $500,000 x .6 = $300,000

PV of after-tax cash flows @ 8% = $300,000 x 9.8181 = $2,945,430

...
Janice Miller
American Intercontinental University
Managerial Accounting 310
Instructor: Matt Keogh
Introduction
“Net Present Value (NPV) is the present value of the net cash inflows generated by a project including salvage value, if any, less the initial investment on the project,” (Irfanullah, Jan., 2013). It is preferred as one of the most reliable measures employed in capital budgeting since it accounts for the time value of money as it uses the discounted...

...Tax Avoidance Analysis
Tax Avoidance is a legally manipulation for the corporations to lower their tax bill by structuring transactions, is also called tax planning. Different with Tax Evasion, the Tax Evasion is Criminal and completely illegal. And in generally, company which have more profit should have higher tax rate, but with the growth of the company, many tax avoidance...

...value (NPV) and Internal rate of return (IRR) are used to determine whether to accept a project or not.Net Present Value (NPV)Net present value is the difference between the present value of cash inflows and the present value of cash outflows. It is used in capital budgeting to analyze the profitability of an investment or project.
NPV= sum[CFt/(1+r)t]-C0
CFt– cash flow in the time t
C0 – initial investment
r – periodic interest rate...

...assess whether it is viable to invest or not the NPV technique can be used to compare the present value of returns and costs. If the NPV is negative it implies that costs exceed returns and hence it would not be advisable to invest in such projects. There are also other investment appraisal techniques that are employed apart from the NPV; these are the pay back method, accounting rate of return and internal rate of return method.
Net present value...

...ASSIGNMENT TOPIC:
“THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)”
NPV (NET PRESENT VALUE)
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will...

...Net Present Value and Internal Rate of Return
by Harold Bierman, Jr
Executive Summary
• • • Net present value (NPV) and internal rate of return (IRR) are two very practical discounted cash flow (DCF) calculations used for making capital budgeting decisions. NPV and IRR lead to the same decisions with investments that are independent. With mutually exclusive investments, the NPV method is easier to use and more reliable.
Introduction
To this...

...a. What is the level of accounts receivable needed to support this sales expansion?
Answer- Level needed is [pic]
b. What would be Collins’s incremental after-tax return on investment?
80,000 – 7,200 = 72,800-4,000-62,400=6,450-1,920= $4,480 which is equal to 28 percent.
c. Should Collins liberalize credit if a 15 percent after-tax return on investment is required? Assume Collins also needs to increase its level of inventory to...

...When cash inflows are even:
NPV = R ×
1 − (1 + i)-n
− Initial Investment
i
In the above formula,
R is the net cash inflow expected to be received each period;
i is the required rate of return per period;
n are the number of periods during which the project is expected to operate and generate cash inflows.
When cash inflows are uneven:
NPV =
R1
+
R2
+
R3
+ ...
− Initial Investment
(1 + i)1
(1 + i)2
(1 + i)3
Where,
i is...

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