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Managerial Accounting
Due Date: Tue, 3/21/17
Grading Type: Numeric
Points Possible: 150
Points Earned: 0
Deliverable Length: 1 page and 1 Excel Spreadsheet
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Assignment Details
Consider the following scenario:
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 Valley Lodge 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.
- 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.
- What subjective factors would affect the investment decision?
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Your assignment will be graded in accordance with the following criteria. Click here to view the grading rubric.
This assignment will also be assessed using the Common Assessment criteria provided here.
THIS ONE PAGE PAGE PLUS ONE PAGE EXCEL SPREADSHEET IS DUE TUESDAY MARCH 21, AT 6PM CENTRAL STANDARD TIME.
I'M PAYING A TOTAL OF $15.00 FOR THE COMPLETED ASSIGNMENT.
