8/19/2019 Deer Valley Lodge

http://slidepdf.com/reader/full/deer-valley-lodge 1/4

Answer 1.

The tax before Computation of NVP related to new lift as well as managers’ advice:

Total Investment

Total Investment = lift cost ! "installation cost # slope preparation$

=%&'((('((( ! %')(('(((

= %)' )(((' (((

*nnual Cash +low

,a-s wor.ed = /(

Per da- wor.ed = %00

1.iers = )((

Total Cash flows = /(2002)(( = %33('(((

Incremental Cost

,a- = %&((

Per da- 4ate= %0((

Total Incremental Cost = &(( 2%0(( = %(('(((

8/19/2019 Deer Valley Lodge

http://slidepdf.com/reader/full/deer-valley-lodge 2/4

Computation of Net cash +low:

Cash inflow = %33('(((

5ess: Cost = %(('(((

 Net cash +low = %03('(((

Computation of 6efore Tax NPV

Total Present Value of cash flow 7/ 8 = net cash flows 2 Present value 7/8

= %03('(((2 393&)

= )'(;'<)3

Total NPV

Total NPV = Net cash flow cash outflows

= %)'(;'<)39(( %)')(('(((9((

 = %/(;'<)39((

The above computed profit of /(;'<)3 shows that it is profitable for the managers of ,eer Valle-

to ma.e investment in new lift9

8/19/2019 Deer Valley Lodge

http://slidepdf.com/reader/full/deer-valley-lodge 3/4

Answer.2

*fter tax cash flow

*fter tax cash flow = Total Cash flow > /(8 tax

= %03('((( &&/'(((

= ))3'(((

 Net Present value of after tax cash flow = Net Cash +lows after Tax2 Present value 7 ;8

= %)))3' ((( 2%<9;;

= %)'&<;';/;

P9V of Tax 1aving

P9V of Tax 1aving= Net cash outflow2 Present value2 Tax 7/(8

=%)')(('(((9((29(0<&)29/

= %<)';<9((

Total NPV

Total NPV=Present value of after tax cash flow ! Present value of Tax savings > P9V of cash

outflows

=%)'&<;';;&9(( ! %<)';<9(( %)')(('(((9((

 = %<)('(9((

8/19/2019 Deer Valley Lodge

http://slidepdf.com/reader/full/deer-valley-lodge 4/4

?n the basis of pretax versus after tax there will be increase in profitabilit-9

Answer 3.

The decision can be influenced as per the following sub@ective factors:

9 If more and more s.iers visit it will ultimatel- increase the purchase of food as well as

more and more eAuipment would be rented b- these additional customers9 Bhile on the

other if there comes less additional customers it will resulted into a downfall of food

 purchasing and renting out of eAuipment so there would be a decrease in the profit9&9 *lthough with the additional life the satisfaction level of customers can be increase and

the- become happier than before' but it doesn’t provide guarantee that more and more

s.iers would be attracted to visit ,eer Valle- 5odge93. There would be decrease in the expected amount of s.iers to visit to ,eer Valle- as

compare to estimated one in case there bad weather conditions9