Net Present Value (NPV) is a way of assessing the value of a potential investment. This takes the future net cash flows and discounts them by the inevitable lay of return that is needed. If the net present return is dumb positive hence the project is giving the required rate of return. (Horngren, Sundem, Stratton, cc5) In the case given with Deer Valley buck we starting signal need to calculate the cash inflows and outflows it testament generate. The first consideration is the cost involved.
public figure 1. Initial Investment.
Chair mention (a)2,000,000Slope preparation (b)1,300,000Total initial investment (a + b)3,300,000Figure 2. Running Costs.
Running costs per day (a)500Number of geezerhood (b)200Total running costs (a x b)100,000Here we ar assuming that the lift provide run for the full 200 days, even though there is only value added for the 40 days when there is insufficient capacity on the on-line(prenominal) lifts.
Now we need to look at the receipts it will generate. First we will look at the gross profit per just the ticket.
Figure 3. Gross Profit per Ticket Sold.
Ticket set (a)55Variable cost (b)5Net cash flow per ticket (a ? b)50Now with the number of tickets to be sold and the days open, we can look at the income and then use that to calculate the net cash flow per socio-economic class.
Figure 4. Net Cash Inflow per Year.
Extra capacity created (no of tickets) (a)300No of days the capacity will be used (b)40Total tickets sold for bargon-ass lift (a x b)(c)12000Net cash inflow per ticket (d)50Net ticket receipts (c x d) (e)600,000Running costs (f)100,000Net cash inflow per year (e ? f)500,000Now we can use this to calculate the net present value. We are told the required pre-tax rate of return is 14% and that the lift will have a 20 year lifetime. This gives...
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