Net present value method—annuity for a service company OBJ. 3 Winter Lake Hotels is considering the construction of a new hotel for $150 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $55 million per year. Total expenses, including depreciation, are expected to be $38 million per year. Winter Lake management has set a minimum acceptable rate of return of 14%.

a. Determine the equal annual net cash flows from operating the hotel.

b. Calculate the net present value of the new hotel, using the present value of an annuity of $1 table found in Appendix A. Round to the nearest million dollars.

c. Does your analysis support construction of the new hotel? Explain.