Part - I

Initial Ivestment
Annual cash inflow
Less: Annual cash outflow
Net Cash flow
PV factor @ 14%
Present value of cash flows
Less: Initial investment
NPV

$3,300,000 ($2,000,000 + $1,300,000)

$660,000 (300 skiers x 40 days x $55/skier-day)
($100,000) (200 days x $500/day)
$560,000
6.6231
$3,708,936
($3,300,000)
$408,936

This will result in value creation of $408,936 and this investment should be made.
Part - II (See workig for depreciatio)
After tax cash flows

Year

$336,000 [$560,000 x (1-40%)]

Cash flow
0 ($3,300,000)
1
$336,000
2
$336,000
3
$336,000
4
$336,000
5
$336,000
6
$336,000
7
$336,000
8
$336,000
9
$336,000
10
$336,000
11
$336,000
12
$336,000
13
$336,000
14
$336,000
15
$336,000
16
$336,000
17
$336,000
18
$336,000
19
$336,000
20
$336,000

Net Present Value

Tax
shield on
Dep
$0
$132,000
$237,600
$190,080
$152,064
$121,704
$97,284
$86,460
$86,460
$86,592
$86,460
$43,296
$0
$0
$0
$0
$0
$0
$0
$0
$0

Total CF
($3,300,000)
$468,000
$573,600
$526,080
$488,064
$457,704
$433,284
$422,460
$422,460
$422,592
$422,460
$379,296
$336,000
$336,000
$336,000
$336,000
$336,000
$336,000
$336,000
$336,000
$336,000

PV factor
@ 8%

PV

1.00000 ($3,300,000)
0.92593
$433,333
0.85734
$491,770
0.79383
$417,619
0.73503
$358,742
0.68058
$311,506
0.63017
$273,042
0.58349
$246,501
0.54027
$228,242
0.50025
$211,401
0.46319
$195,681
0.42888
$162,674
0.39711
$133,430
0.36770
$123,547
0.34046
$114,395
0.31524
$105,921
0.29189
$98,075
0.27027
$90,810
0.25025
$84,084
0.23171
$77,855
0.21455
$72,088
$930,716

Since, the NPV is postive, this investment will add value to the company and it should be undertaken
Depreciation working:
Year
1
2
3
4
5
6
7
8
9
10
11

Dep rate Depreciation

10.00%
$330,000
18.00%
$594,000
14.40%
$475,200
11.52%
$380,160
9.22%
$304,260
7.37%
$243,210
6.55%
$216,150
6.55%
$216,150
6.56%
$216,480
6.55%
$216,150
3.28%
$108,240

Tax shield
$132,000
$237,600
$190,080
$152,064
$121,704
$97,284
$86,460
$86,460
$86,592
$86,460
$43,296