Consider how Steinback Valley River Park Lodge could use capital budgeting to decide whether the $12,000,000 River Park Lodge expansion would be a good investment. Assume Steinback Valley's managers developed the following estimates concerning the expansion: 1(Click the icon to view the estimates.) Read the requirements2. Requirement 1. Compute the average annual net cash inflow from the expansion. The average annual net cash inflow from the expansion is Requirement 2. Compute the average annual operating income from the expansion. The average annual operating income from the expansion is 1: Data Table Number of additional skiers per day 119 skiers Average number of days per year that weather conditions allow skiing at Steinback Valley 151 days Useful life of expansion (in years) 8 years Average cash spent by each skier per day $244 Average variable cost of serving each skier per day 78 Cost of expansion 12,000,000 Discount rate 14% Assume that Steinback Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $850,000 at the end of its eight-year life. 2: Requirements 1. Compute the average annual net cash inflow from the expansion. 2. Compute the average annual operating income from the expansion.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Question

Consider how

Steinback

Valley

River

Park Lodge could use capital budgeting to decide whether the

$12,000,000

River

Park Lodge expansion would be a good investment. Assume

Steinback

Valley's managers developed the following estimates concerning the expansion:

1(Click

the icon to view the estimates.)

Read the

requirements2.

Requirement 1. Compute the average annual net cash inflow from the expansion.

The average annual net cash inflow from the expansion is

Requirement 2. Compute the average annual operating income from the expansion.

The average annual operating income from the expansion is

1: Data Table

Number of additional skiers per day	119 skiers
Average number of days per year that weather conditions allow skiing at Steinback Valley	151 days
Useful life of expansion (in years)	8 years
Average cash spent by each skier per day	$244
Average variable cost of serving each skier per day	78
Cost of expansion	12,000,000
Discount rate	14%

Assume that

Steinback

Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of

$850,000

at the end of its

eight-year

life.

2: Requirements

1.	Compute the average annual net cash inflow from the expansion.
2.	Compute the average annual operating income from the expansion.

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