1. Accounting Help for Assignment

2. Ip 5
Net Present Value
Determining the value of the income from a project in today’s dollars
Compare that to today’s investment

3. Ip 5 Example Lottery Payments Lump sum Annuity
The same amount for a specified period of time
Lump sum
This is the NPV of the annuity
This will be less than the payments
You can invest at the present interest rate and have the payments

4. Ip 5 Deer Valley Lodge Installing a new lift
We want to consider only 1 lift (not 5)
We are looking at the income from this lift
Is it a good investment?

5. IP 5 Make initial calculations Investment Income (Revenues) Expenses
Price of lift + installation and slope prep
Income (Revenues)
Additional skiers x number of days they will be there x price of a ticket
Expenses
Daily expenses x days open
Net income (cash flow) Our Annuity
Income - Expenses

6. Question 1 Before Tax NPV
Before Tax NPV = Yearly Net income x NPV factor
NPV Factor - Page B-11 (Appendix) Table B.3
Present value of an annuity of $1
14%
NPV factor is where the 2 meet
20 Periods
20 years for 14% is (not given in table)
Compare the Before Tax NPV to the Investment
If the NPV is more than the investment, it is a good investment

7. Question 2 – Step 1 After Tax NPV Before tax income is 100% of income
After tax income deducts the taxes
100% - 40% = 60% left after taxes
After tax net income = Net income (from beginning) x 60%
After tax NPV = After tax net income x NPV factor
NPV factor page B-11
Go down 20 periods and across to 8% (after tax required rate of return)

8. Question 2 – Step 2 NPV of Tax Savings
Tax Savings = Investment x tax rate
NPV of tax savings = tax savings x NPV Factor
NPV factor table is given in your assignment
Go down to 8% ( discount rate) and across to 10-years
We depreciate the investment for 10 years

9. Question 2 – Step 3
Total NPV = After Tax NPV (Step 1) + NPV of the Tax Savings (Step 2)
Compare to the investment
If the NPV is more than the investment, it is a good investment

10. Question 3 Discussion Subjective factors
Our projections are based on estimates
What will cause our estimates to be incorrect?
What will cause us to make more money?
What will cause us to make less money?
Think of things like the economy, etc.