Answer:
1.$2,035,692
2.$1,091,248
3.8.24 years
4.22.97%
Explanation:
Hunter Valley
1. Computation for the average annual net cash inflow from the expansion.
Formula for Average annual net cash inflow from operation
= Numbers of skiers day * Contribution margin per skier
(122*162) * ($245 - $142)
=19,764*$103
= $2,035,692
2.Computation for the average annual operating income from the expansion
Formula for Average annual operating income from expansion
= Annual cash inflow - Depreciation
= $2,035,692 - ($9,000,000 - $500,000) / 9
= $2,035,692-$8,500,000/9
$1,091,248
3.Computation for the Payback period
Payback period = Initial investment / Annual cash inflows
= $9,000,000 / $1,091,248
= 8.24 years
4.Computation for the ARR
ARR = Average annual income / Average investment
Hence:
Average investment = (Cost +Residual value) / 2
= ($9,000,000 +$500,000) / 2
=$9,500,000/2
= $4,750,000
ARR = $1,091,248 / $4,750,000
=0.2297×100
= 22.97%
