Consider how Clare Valley, a popular ski resort, could use capital budgeting to decide whether the $8.5 million Brook Park Lodge expansion would be a good investment.

Why or w Requirements he neare 1. What is the project's NPV? Is the investment attractive? Why or why not? 2. Assume the expansion has no residual value. What is the project's NPV? Is the investment still attractive? Why or why not? Print Done Data Table Assume that Clare Valley's managers developed the following estimates concerning a planned expansion to its Brook Park Lodge (all numbers assumed): $ Number of additional skiers per day.. 120 Average number of days per year that weather conditions allow skiing at Clare Valley 158 Useful life of expansion (in years).... 10 Average cash spent by each skier per day......... 244 Average variable cost of serving each skier per day . $ 148 Cost of expansion... $ 8,500,000 Discount rate.... 12% Assume that Clare Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $900,000 at the end of its ten-year life. It has already calculated the average annual net cash inflow per year to be $1,820,160. Print Done Reference Present Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 Period 2 1.970 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 Period 3 2941 2.884 2.829 2.775 2723 2.673 2.577 2.487 2402 2.322 2.246 2.174 2.106 Period 4 3.902 3.808 3.7173.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2690 2.589 Period 5 4.8534.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 Period 6 5.795 5.601 5.417 5.2425.076 4.917 4.623 4.355 4.111 3.8893.685 3.498 3.326 Period 7 6.728 6.472 6.230 6.002 5.786 5.5825.206 4.8684.564 4.288 4.039 3.812 3.605 Period 8 7.6527 325 7020 6.733 6.463 | 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 Period 9 8.5668.162 7786 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4031 Period 10 9.471 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 Period 11 10.368 9.787 9.253 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 Period 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.1945.660 5.197 4.793 4.439 Period 13 12 134 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4,533 Period 14 13.004 12.106 11,296 10.563 9.899 9.295 8.244 7367 6.628 6.002 5.468 5.008 4.611 Period 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 7 469 6.623 5.929 5.353 4.870 Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7 843 6.873 6.097 5.467 4.948 Period 30 25.808 22.396 19.600 17 292 15.372 13.765 11 258 9.427 8.055 7.003 6.177 5,517 4.979 Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6233 5.548 4.997 Print Done Reference Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 0.8570.826 0.797 0.769 0.743 0.718 0.694 Period 3 0.971 0.942 0.915 0.8890.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 Period 4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 Period 5 0.951 0.906 0.863 0.822 0.784 0747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 Period 6 0.942 0.888 0.837 0.790 0.746 0.705 0630 0.564 0.507 0.456 0.410 0.370 0.335 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0314 0.279 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0233 Period 9 0.914 0.837 0.766 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 Period 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 Period 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0 208 0.168 0.137 0.112 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0 145 0.116 0.093 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 Period 15 0.861 0.743 0.642 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 Period 200.820 0.673 0.554 0.456 0.377 0.3120.215 0.149 0.104 0.073 0.051 0.037 0.026 Period 25 0.780 0610 0.478 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 Period 40 0.672 0.453 0.307 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 Print Done Reference - Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 20 Period 25 Period 30 Period 40 Future Value of Annuity of $1 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1,000 1.000 1.000 1.000 1.000 1.000 2010 2020 2.030 2.040 2050 2.060 2.000 2.100 2.120 2.140 2160 2.180 2 200 3.030 3.060 3.091 3.122 3.153 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 4,060 4.122 4.184 4.246 4310 4.375 4.506 4.641 4.779 4.921 5.066 5.215 5368 5.101 5.204 5.309 5.416 5.526 5.637 5,867 6.105 6.353 6.610 6 877 7.154 7.442 6.152 6.308 8.468 6.633 6.802 6.975 7336 7716 8.115 8,536 8.977 9.442 9.930 7.214 7.434 7.6627.898 8.142 8.394 8.923 9.487 10,089 10.730 11.414 12.142 12.916 8.288 8.583 8.892 9.214 9.549 9.897 10.637 11.436 12.300 13.233 14.240 15.327 16.499 9.369 9.755 10.159 10.583 11.027 11 49112.488 13,579 14.776 16 085 17 519 19.088 20.799 10.462 10.950 11.464 12 006 12.578 13.18114 4871593717 549 19.337 21,321 23,521 25.959 11.567 12 169 12 808 13.486 14,207 14.972 16.645 18.531 20.655 23.045 25.733 28.755 32.150 12 683 13.412 14.192 15.028 15,917 16.870 18.977 21 384 24 133 27 271 30.850 34.931 39.581 13.809 14 880 15,618 16.627 17.713 18.882 21.495 24 523 28.029 32.089 36 786 42219 48.497 14.947 15.974 17.086 18.292 19.599 21.015 24.215 27.97532393 37581 43 672 50.818 59.196 16.097 17.29318.599 20.02421,579 23.276 27.152 31.772 37 280 43.842 51.880 60.965 72035 22019 24.297 26.870 29.778 33,066 36.786 45.762 57.275 72.052 91.025 115380 146.628 186.688 28 243 3203036.459 41.646 47 727 54.865 73.106 98,347 133.334 181.871 249.214 342.603 471 981 34.785 40,568 47.57556.08566.439 79.058 113.283 164.494 241.333 356.787 530.312 790.948 1,181 882 48.886 60.402 75 401 95.026 120 800154.762 259,057 442.593 767 091|1,342 025 2,360.757 4.163.213 7,343.858 Print Done Reference Future Value of $1 Periods Period 1 Period 2 Period 3 Period 4 Period 5 1% 1.010 1020 1.030 1041 1.051 2% 1.020 1.040 1.061 1.082 1.104 3% 1.030 1.061 1.093 1.126 1.159 4% 1040 1.082 1.125 1.170 1.217 Period 6 Period 7 Period 8 Period 9 Period 10 1.062 1,072 1.083 1,094 1.105 1.126 1.149 1.172 1.195 1219 1.194 1230 1.267 1.305 1.344 1.265 1.316 1.369 1.423 1.480 5% 6% 8% 10% 12% 14% 16% 18% 20% 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 1 103 1.124 1.166 1210 1.254 1.300 1.346 1.392 1.440 1.158 1.191 1.260 1331 1.405 1.482 1.561 1.643 1.728 1.216 1 262 1.360 1.464 1.574 1.689 1.811 1.939 2074 1276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 2.488 1.340 1.419 1.587 1772 1.974 2 195 2436 2.700 2.986 1.407 1.504 1.714 1.949 2211 2 502 2826 3.185 3.583 1.477 1.594 1.851 2.144 2476 2853 3.278 3.759 4.300 1.551 1.689 1.999 2358 2.773 3.252 3.803 4.435 5.160 1.629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 1.710 1.898 2332 2.853 3.479 4 226 5.117 6.176 7430 1.796 2012 2 518 3.138 3.896 4.818 5.936 7288 8,916 1.886 2133 2720 3.452 4.363 5.492 6.888 8.599 10.699 1.980 2 261 2.937 3.797 4.887 6.261 7.988 10.147 12.839 2.079 2.397 3.172 4.177 5.474 7 138 9.266 11.974 15.407 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27393 38 338 3.386 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95 396 4.322 5743 10.063 17.449 29.960 50.950 85.850 143,371 237.376 7.040 10.286 21.725 45.259 93.051 188.884 378.721 750 378 1469.772 Period 11 Period 12 Period 13 Period 14 Period 15 1.116 1.127 1.138 1.149 1.161 1 243 1 268 1.294 1.319 1.346 1.384 1.426 1.469 1.513 1.558 1.539 1.601 1.665 1.732 1.801 2.191 2.686 3.243 4.801 Period 20 Period 25 Period 30 Period 40 1.220 1.282 1.348 1.489 1.486 1.641 1.811 2.208 1.806 2.094 2.427 3.262 Print Done