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Submitted By cortiajohson

Words 920

Pages 4

Words 920

Pages 4

We have to calculate the net present value of cash flows and compare this amount to the cost of investments.

Net present value of cash flows

(cash inflow – cash outflow) X the factor for PV of cash flows for ordinary annuity of $1 at 14% for 20 years, which is 6.6231 take from PV Table 1.

Cash Inflow

Additional skiers that the lift will allow x number of days per year when extra capacity will be needed x cost of lift ticket a day

Additional skiers that the lift will allow 300

X number of days per year when extra capacity will be needed 40

X cost of lift ticket a day $55 .

= Cash Inflow $660,000

Cash Outflow

Cost of running the lift per day x number of days the lodge will be open

Cost of running the lift per day $500

X number of days the lodge is open 200 .

= Cash Outflow 100,000

Present value of net cash flow

Net cash flows = cash inflow – cash outflow Cash inflow $660,000

Less Cash Outflow $100,000

= Net cash flows $560,000

Net present value of cash flows

Net cash flows x the factor for P V of cash flows for ordinary annuity of $1 at 14% for 20 years is 6.231 taken from PV Table 1

Net Cash flows $560,000

X The factor for P V of cash flows for ordinary annuity 6.6231 Net present value of cash flows $3,708,936

Cost of the Investment = Cost of the lift + cost of preparing the slop and installing the lift

Cost of the lift $2,000,000

+ Cost of preparing the slop and installing the lift...

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