Deer Valley Lodge Research Paper Example | Topics and Well Written Essays - 250 words

Deer Valley Lodge - Research Paper Example In making a decision of an investment, value of NPV is critical in deciding if an investment is good or not. A positive value means that an investment is good, but a negative value means that the investment is not worth it. In this case, the value is positive; therefore, I would advise the management to go ahead and invest in the project (Megginson et al. 252). The net income from the investment annually is $560,000. The tax rate on income is 40% leaving us with 60%. 40% of $560,000 is $224,000, meaning that the after-tax net income is $336,000. The rate of return due to taxation consideration is expected to drop down to 8%, therefore, the MACRS recovery period is 10 years in order to save on tax costs. The new NPV will mean $336,000 is multiplied by the factor 9.818. This will with NPV of $3,298,848. Here, there is a new twist as the investment is to be depreciated within 10 years. Some money will be saved on taxes by this move. To find the tax savings, the initial investment ($3,300,000) is multiplied by the tax rate to get $1,320,000. The tax savings are then multiplied by the 8% discount rate for ten years resulting in $931,788, tax savings NPV. $931,788 is then added to $3,298,848 to get $4,230,636. Compared to the $3,300,000, the initial investment we get a resulting figure of $930,636. This is a very big investment as it earns bette r results than the first scenario with the kind of returns it gives. The scenarios painted in the two parts above are just estimates on paper that are hoped will be the case. The figures are assumed that they will remain consistent, but in reality many things could change that might affect the envisioned income streams from the investment. Deer Valley is a resort that depends on the choice of tourists to flock and use the facilities. Many factors can change the situation including weather conditions like heavy rainfall, delayed snowfall which will come at the supposed peak season or any other natural calamity/disaster