David Glossop has operated the 100-room, rooms-only Jonathan Inn in northwestern Ohio for several years as an independent property. However, several franchised properties have been built nearby in the last few years, and David has seen a drop in business.

Success Inns has approached David with its franchise concept, and he desires your assistance. The franchise salesperson for Success Inns states the following:
Us David's property should be able to increase its annual occupancy percent- age from 60% to 65%.
. The Jonathan Inn’s average daily rate should increase by $3 with the Success Inn label for the first 3 years over rates he could command with- out it, and further, by $5 for years four-ten.
. The franchise costs associated with a Success Inn franchise are as follows:

a. An initial fee of $15,000 is due at the beginning of year one.

b. A royalty fee of 5% of room sales is due at the end of each year. Total room sales for year one are projected to be $949,000, given an ADR of $40.

c. Anadvertising /reservation fee of 5% of sales is due at the end of each year.
Additional information is as follows:
. Variable costs average 30% of sales and are expected to remain at this same percentage except for costs associated with this franchise.
. Fixed costs are expected to remain constant except for the $15,000 initial fee, which would be amortized over the 10-year period at the rate of $1,500 per year.
. Glossop’s marginal tax rate is 28%.
. Glossop’s cost of capital is 12%.
. Assume each year has 365 days.
Required:
Calculate the net present value of this proposed franchise. (Hint: consider only differential revenues and expenses.)