Deer Valley Lodge

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1. I am asked to compute the before-tax Net Present Value or NPV of a new ski lift for Deer Valley Lodge and advise the management there of the profitability. Before I am able to make this calculation there are a few calculations that I will need to make first. First the total amount of the investment, this will be the cost of a lift itself $2 million plus the cost of preparing the slope and installing the lift $1.3 million. Thus the investment amount for one lift is $3.3 million. 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…
There are several factors that may change these numbers and should be considered prior to making an investment such as this. This is a ski resort and their income is based on the weather conditions and tourism. Both of these major factors can have dramatic fluctuations from year to year. For instance a late snow fall one year could push the ski season out past the major holiday vacation break drastically reducing the number of tourists available to ski. Unforeseen storms such as fires, earthquakes, and ice storms that are common to the mountains could cause severe damage during the peak of a season costing not only unplanned expenses, but the loss of ticket sales. Political and environmental issues could change the utility costs. Inflations could cause the employee wages to rise, adding to costs. Just trying to plan 20 years into the future can be challenging when dealing with the tourism industry, there are so many changes in styles, fads, technologies, and even economies. Who will you cater your business to 10 and 15 years from now? What about future competition from other resorts? On the other hand their will be great snow seasons too, providing many more days and attracting more visitors. Will these good years balance out with the bad? There are a lot of challenging questions when it comes to investment decisions. I believe knowledge is truly power in these
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