# Internal rate of return method for a service company Park City Mountain Resort, a Utah ski resort, recently announced a $415 million expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce$99 million in equal annual cash flows for each of the first 10 years of the project life. a. Determine the expected internal rate of return of this project for 10 years, using the present value of an annuity of $1 table found in Exhibit 5. b. What are some uncertainties that could reduce the internal rate of return of this project? BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 BuyFind ### Accounting 27th Edition WARREN + 5 others Publisher: Cengage Learning, ISBN: 9781337272094 #### Solutions Chapter Section Chapter 26, Problem 26.17EX Textbook Problem ## Internal rate of return method for a service company Park City Mountain Resort, a Utah ski resort, recently announced a$415 million expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $99 million in equal annual cash flows for each of the first 10 years of the project life. a. Determine the expected internal rate of return of this project for 10 years, using the present value of an annuity of$1 table found in Exhibit 5. b. What are some uncertainties that could reduce the internal rate of return of this project?

Expert Solution

a.

To determine

Internal rate of return method:

Internal rate of return method is one of the capital investment methods which determine the rate of return, wherein the net present value of all the cash flows (both positive and negative) from an investment is zero. This method is also called as the time-adjusted rate of return method. It used to evaluate the different proposal’s expected rate of return.

To determine: The internal rate of return for the given project

### Explanation of Solution

When the annual cash flows are equal, the internal rate of return can determined as follows:

PresentÂ valueÂ factorÂ forÂ anÂ annuityÂ ofÂ \$1}=AmountÂ toÂ beÂ invested

Expert Solution

b.

To determine

To identify:  The uncertainties that could reduce the internal rate of return of the PC Mountain Resort.

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