Deer Valley Lodge Essay
Next I will need to find out the yearly net income from the investment. This will be gross ticket sales minus the total expenses. Deer Valley expects 300 skiers per day for 40 days at $55.00 per ticket, giving us $660,000 in ticket sales. In order to …show more content…
Our rate of return will drop to 8% since we will be expecting a lower rate of return after taxes. The NPV factor for 20 years @ 8% is 9.8181. By multiplying the NPV factor of 9.8181 times our after tax annuity of $300,000 we have a NPV of $2,945,430.00 for our after tax net income.
Next I need to find the NPV of the tax savings from the depreciation of the investment. The amount of money that we save on taxes will be the amount of the deduction times the tax rate. I will be able to deduct the total investment over 10 years as depreciation. To find the tax savings on the investment I multiply the investment amount of $3.3 million times the tax rate of 40% to find the tax savings of $1,320,000.00. I then multiply the tax savings times the NPV factor of .7059, the discount rate of 8% at 10 years, to find $931,788.00, the NPV of the tax savings.
Now to find the total NPV of the after-tax income I add the NPV of the tax savings $931,788 to the NPV of the after-tax net income $2,945,430 giving us $3,877,218.00. When compared to the $3.3 million investment it looks like we have a profit of $577,218.00 making this a good investment.
3. The figures in the first two answers are purely