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Answered) Consider how Kyler Valley Spring Park Lodge could use capital budgeting to decide whether the $13,000,000 Spring Park Lodge expansion would be a good...


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Consider how Kyler Valley Spring Park Lodge could use capital budgeting to decide whether the
$13,000,000 Spring Park Lodge expansion would be a good investment. Assume Kyler
Valley's managers developed the following estimates concerning the expansion.
Under the assumption that the expansion would have a residual value of $950,000, the managers
calculated the payback period to be 4.4 years, the ARR to be 20.89%,the average annual operating
income to be $1,456,850, the average amount invested to be $6,975,000,and the average annual net
cash inflow to be $2,963,100.
Assume that Kyler Valley uses the straight-line depreciation method and now expects the lodge
expansion to have zero residual value at the end of its eight-year life.
Will the payback change? Explain your answer. Recalculate the payback if it changes. Round to one
decimal place.
Select the formula to calculate the payback period.
Amount invested/Expected annual net cash flow = payback
The payback will (select one of the two) “continue to” or “now” be _________ years.
The residual value (select one of the two) “affects” or “does not affect” the computation of the payback
and the payback method, (select one of the two) “does not consider” or “consider”
cash flows that occur after the payback period. Fill in the blanks. See above
The payback will ___________be___________. The residual value ______the computation of the
payback of the payback and the payback method ________cash flows that occur after the payback
period.

 


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