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Deer Valley Lodge

Essay by   •  August 25, 2013  •  Case Study  •  583 Words (3 Pages)  •  1,081 Views

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Deer Valley Lodge Stats

Individual Project #5

AIU

Damaris Rodriguez

Abstract

Deer Valley Lodge is a ski resort in Wasatch Mountains of Utah. Deer Valley is planning to add

five chairlifts that cost $2 million and a slope that cost $1.3 million. This will allow more skiers

onto the slope which means more business. I will be showing the calculations of the tax required

rate return for Deer Valley at 14%. I will also be showing the before after tax required rate of

return for Deer Valley at 8% when the net income tax rate is 40%, by computing the after tax we

will see the profit that the resort will bring in by adding the lift.

Introduction

There are a few things I need to consider before making any calculations. First I need to see

what the total amount of the investment will cost which $2 million plus the cost of the

installation of the lift at $1.3 million, the investment amount for a lift is $3.3 million. The next \

step would to figure out the yearly income from the investment. Deer valley expects about 300

skiers per day for 40 days at $55.00 per ticket, this gives us a sale of $660,000 tickets. I need to

separate the fixed and variable in order to find the total expenses. The lodge is open a total of

200 days a year and the cost for running a new lift is $500.00 per day, but for the entire year it

will be $100,000 in fixed cost. Variable cost expense really depends on how many customers

they have per day or year.

Overview

Investment of lifts = $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) = $100,000

In order to compute the before tax Net Present Value or NPV of a ski lift Deer Valley Lodge

and advise the management there of the profitability. The NPV=

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