Calculate the ARR

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Question - Consider how McKnight Valley River Park Lodge could use capital budgeting to decide whether the $11,500,000 River Park Lodge expansion would be a good investment. Assume McKnight ?Valley's managers developed the following estimates concerning the? expansion:

Number of additional skiers per day 117 skiers

Average number of days per year that weather conditions allow skiing at McKnight Valley 146 days

Useful life of expansion (in years) 8 years

Average cash spent by each skier per day $238

Average variable cost of serving each skier per day 87

Cost of expansion 11,500,000

Discount rate 10%

Assume that McKnight Valley uses the? straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its eight?-year life. The average annual operating income from the expansion is $1,216,882 and the depreciation has been calculated as $1,362,500.

Required - Calculate the ARR. Round to two decimal places.

Reference no: EM132974864

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