Unit 5 IP Demetrius Sessions Managerial Accounting & Organizational Control Instructor: Sunny Onyiri Part 1 The total of initial investment is 1.3 million + 2 million = 3.3 million The annual cash inflow is 300 * 40 days * 55= 660,000 The annual cash out flow is 200 * 500= 100,000 The Net cash flow is 660,000 – 100,000 = 560,000 20 years and 14 % interest is 6.6231 560,000 * 6.6231 = 3,708,936 NPV=3,708,936 – 3,300,000 = 408,936 The profitable investment is 408,936 It would be a profitable investment to add the lift to Deer Valley Lodge because the investment is positive. Part 2 The after tax rate is 40% 560,000 * (1-40%) = 336,000 The PV of after tax cash flow @ 8% for 20 years is 9.8181 (p. A13) 336,000 * 9.8181 = 3,298,881.6 8% of 10 years is .7056 (p.491) PV of tax savings is 3,300,000 * 40 * .7059 = 931,788 NPV after tax = 3,298,881.6 + 931,788 – 3,300,000 = 930,669.60 Adding the lifts would be a profitable investment because the NPV after tax is greater which mean the project should be accepted and not rejected. Part 3 There are many subjective factors that would impact the manager’s decision to invest in adding the ski lifts. For instance, bad weather could such as an ice storm or a snow blizzard could have a negative affect. And, it can also delay production or it can cause the manager to decide not to add the lifts until weather conditions improve. Bad economy is another factor that could impact the manager’s decision to invest. If the economy is in a recession it could decrease the occupancy rate and cause the lodge to either not operate the lifts or the manager could postpone adding the lifts until the economy picks up again. Limited funds areanother factor which would affect the manager’s decision to invest in adding the lifts. If the manager has limited funds or a tight budget this could cause the manager to cut spending in other areas of the lodge in order to increase funding for the lift project. References...