## 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) â€œcontinue toâ€ or â€œnowâ€ be _________ years.
The residual value (select one of the two) â€œaffectsâ€ or â€œdoes not affectâ€ the computation of the payback
and the payback method, (select one of the two) â€œdoes not considerâ€ or â€œconsiderâ€
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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