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Solved paper 31822

Deer Valley Lodge, a ski resort in the Wasatch Mountains of. Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, hasplans to eventually add five new chairlifts. Suppose that one liftcosts $2 million, and preparing the slope and installing the lift costsanother $1.3 million. The lift will allow 300 additional skiers on theslopes, but there are only 40 days a year when the extra capacity willbe needed. (Assume that Deer Valley Lodge will sell all 300 lift ticketson those 40 days.) Running the new lift will cost $500 a day for theentire 200 days the lodge is open. Assume that the lift tickets at DeerValley cost $55 a day. The new lift has an economic life of 20 years.Assume that the before-tax required rate of return for Deer Valleyis 14%. Compute the before-tax NPV of the new lift and advise themanagers of Deer Valley about whether adding the lift will be aprofitable investment. Show calculations to support your answer.Assume that the after-tax required rate of return for DeerValley is 8%, the income tax rate is 40%, and the MACRS recovery periodis 10 years. Compute the after-tax NPV of the new lift and advise themanagers of Deer Valley about whether adding the lift will be aprofitable investment. Show calculations to support your answer.What subjective factors would affect the investment decision? Deer Valley Lodge, a ski resort in the Wasatch Mountains of


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