Consider how Frost Valley, a popular ski resort, could use capital budgeting to decide whether the $8.5 million River Park Lodge expansion would be a good investment. (Click the icon to view the expansion estimates.) Now assume the expansion has zero residual value. Requirements 1. Will the payback period change? Explain and recalculate if necessary. 2. Will the project's ARR change? Explain and recalculate if necessary. 3. Assume Frost Valley screens its potential capital investments using the following decision criteria: maximum payback period 5 years and minimum accounting rate of retum 10% Will Frost Valley consider this project further or reject it? Requirement I. Willine paydack period changer Explain and recalculate Cossary The initial payback period of 4.26 years will not change since the method does not consider any cash flows that occur after the payback period. The residual value will not affect cash flows until the end of the asset's life, so it was not considered in the original payback calculation First enter the formula, then calculate the payback period with no residual value. (Round your answer to two decimal places.) i Data Table Amount invested 1 Expected annual net cash Inflow = Payback period 4.28 years 8500000 Assume that Frost Valley's managers developed the following estimates concerning a planned expansion to its River Park Lodge (all numbers assumed): Requirement 2. Will the project's ARR change? Explain and recalculate if necessary The ARR will change if the asset has no residual value. The average annual operating income will be lower since there is more depreciation expense Now let's enter the formula, then calculate the ARR with no residual value. (Round Interim calculations to the nearest whole dollar. Enter your final answer as a perce Average annual operating income from asset Initial Investment 8500000 = = Accounting rate of return 10 % Number of additional skiers per day...... Average number of days per year that weather conditions allow skiing at Frost Valley Useful life of expansion in years) .............. Average cash spent by each skier per day ........... $ Average variable cost of serving each skier per day .... $ Cost of expansion............................... $ Discount rate.............................. ....................... ... Choose from any list or enter any number in the input fields and then continue to the next question. 8,500,000 10%