5 Responsibility Centers And Financial Control
Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to add five new chairlifts, eventually. Each company has a certain amount of money to spend on large projects. In this case, for this company, it is for 5 ski lifts. We will analyze the cost benefits or losses of adding one lift. To decide what to do we will use the NPV that tell us the present value of all cash inflows and cash outflows. If the net NPV is positive we accept the project, if it is negative, we reject it.
Facts: Cost of one lift $2 million
Prep & install $1.3 million
Running the new lift $500 a day for 200 days
Cash expenses per skier $5
Lift tickets $55 a day
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.
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......
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Approximate Word Count: 496
Approximate Pages: 2 (250 words per double-spaced page)
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