# Deer Valley Ski Lodge Resort

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Deer Valley Ski Lodge Resort
Deer Valley Lodge Ski Resort
Katrina Edwards
14 December 2008
AIU

Deer Valley Lodge Ski Resort Deer Valley Lodge wants to upgrade their facilities by adding five ski lifts. What we were first asked to do was to calculate the investment, which includes the lifts, installation, and preparation. It’ll cost \$2 million for each lift and \$1.3 million to prepare the slopes. The investment, what needs to be spent today is \$3.3 million, you’ll get that figure by adding the costs of the lift and preparing the slopes. Next we need to figure out the annuity or income. The additional slopes will be open 40 days a year and plans at selling 300 tickets at \$55 each. To find the income, we did the following: 300 * 40 * 55 = \$660,000. The income or gross sales Deer Valley Lodge will make would be \$660,000. Calculating the yearly expenses is easy, we just multiplied the cost per day (\$500) times the number of days open (200) yearly. So the yearly expenses are \$500 * 200 = \$100,000. The net income was found by subtracting expenses from income. \$660,000 - \$100,000 = \$560,000, which is the amount made from ticket sales. Next we had to get the Net Present Value (NPV), which is the “sum of the present values of all expected cash flows (Horngren, Sundem, Stratton, Burgstahler, and Schatzberg, 2008),” of the before tax net cash inflow. We took the net income and multiplied it by the NPV factor, which is 6.6231. \$560,000 * 6.6231 = \$3,708,936. Then we compared it to the investment, of \$3.3 million to see if it’s worth investing. This would be a good short-term and long term investment because it’s more than the initial investment. We then determined the after tax cash flow and the NPV of the after tax cash flow. We did this by subtracting 40% from 100% to get 60% and then multiplied that percentage by the net income. 560,000 * 60% = \$336,000, which is the after tax cash flow. The NPV of the after tax cash flow is taking the after tax net income (\$336,000)

References: Horngren, C., Sundem, G., Stratton, W., Burgstahler, D., and Schatzberg, J. (2008). Introduction to Management Accounting; Chapters 1-17, Fourteenth Edition. Upper Saddle River, NJ: Pearson/Prentice Hall

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