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Wonderland Company Memo Tos From Dates Group J. Douglas Wellington, Finance Director 3/31/20 New project Rec The company is contemplating a new investment in a ski resort. The initial capital investment will be $600,000, with additional investments of $40,000 in year 1, $40,000 in year 2, $80,000 in year 3 and $90,000 in year 4. The investment is expected to generate sales of $1,682,000 in year 1, $2,030,000 in year 2. $2,244.000 in year 3 and $2,470,000 in year 4. Direct cost of sales is anticipated to be 11% of sales. The initial capital investment will be depreciated over four years at 33.33%, 44,45%, 14.81% and 7.41%, respectively. The additional investments will be assumed to be fully depreciated in the year purchased. Other operating expenses are expected to be 74% of sales in year 1,66% of sales in year 2 and 64% of sales in years 3 through 4. Calculate taxes using Schedule 1A. As part of the project the company will need to budget for initial networking capital of $80,000. Ending working capital should be budgeted as $90,800 in year 1, $301,000 in year 2, $437 200 in year 3 and $568,000 in year 4. The company requires a payback period of 4 years or less. Based on a required rate of return of 8.0%, determine if this investment should be undertaken. The company also has the opportunity for a mutually exclusive alternative investment. In that case the company would need make an initial capital investment of $1,300,000. The project would have an internal rate of return of 10.10%, a payback period of 3.2225 years, a not present value of $73,811 and a profitability index of 1.0506. Also evaluate if this investment should be undertaken and which alternative would be a better investment. Please contact me if you have any questions. Wonderland Company Memo Tos From Dates Group J. Douglas Wellington, Finance Director 3/31/20 New project Rec The company is contemplating a new investment in a ski resort. The initial capital investment will be $600,000, with additional investments of $40,000 in year 1, $40,000 in year 2, $80,000 in year 3 and $90,000 in year 4. The investment is expected to generate sales of $1,682,000 in year 1, $2,030,000 in year 2. $2,244.000 in year 3 and $2,470,000 in year 4. Direct cost of sales is anticipated to be 11% of sales. The initial capital investment will be depreciated over four years at 33.33%, 44,45%, 14.81% and 7.41%, respectively. The additional investments will be assumed to be fully depreciated in the year purchased. Other operating expenses are expected to be 74% of sales in year 1,66% of sales in year 2 and 64% of sales in years 3 through 4. Calculate taxes using Schedule 1A. As part of the project the company will need to budget for initial networking capital of $80,000. Ending working capital should be budgeted as $90,800 in year 1, $301,000 in year 2, $437 200 in year 3 and $568,000 in year 4. The company requires a payback period of 4 years or less. Based on a required rate of return of 8.0%, determine if this investment should be undertaken. The company also has the opportunity for a mutually exclusive alternative investment. In that case the company would need make an initial capital investment of $1,300,000. The project would have an internal rate of return of 10.10%, a payback period of 3.2225 years, a not present value of $73,811 and a profitability index of 1.0506. Also evaluate if this investment should be undertaken and which alternative would be a better investment. Please contact me if you have any questions

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