The entire cost of the resort will be depreciated

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Reference no: EM131010586

You have paid $50,000 to a consulting firm to examine the purchase of Slippery Slope Ski Resort. The consultant’s report provides the following information: (a) The selling price of Slippery Slope Ski Resort is $4,000,000. For tax purposes, the entire cost of the resort will be depreciated over a 10-year period using the straight line method (i.e., depreciation will be $400,000 each year for 10 years). (b) At the end of 10 years, you will sell the resort for $1,000,000. Since the Ski Resort will be fully-depreciated at this point, the $1,000,000 will be taxable income. (c) Annual expected revenues are $1,200,000 and annual expected operating costs are $300,000. (d) You expect accounts receivable to equal $100,000 after one year and stay at this level for the life of this project. After 10 years, when the resort is sold, the accounts receivable will be retrieved. (e) Tax rate is 30%. (f) The cost of capital for this project is 12%. What is the net present value of the project? Should you go ahead with the project?

Reference no: EM131010586

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