Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A nationwide hotel chain is considering locating a new hotel in Bigtown, USA. The cost of building a 150 -room hotel (excluding furnishings) is $10.000.000.

image text in transcribed
A nationwide hotel chain is considering locating a new hotel in Bigtown, USA. The cost of building a 150 -room hotel (excluding furnishings) is $10.000.000. The firm uses a 15 -year planning horizon to evaluate irvestments of this type. The furnishings for this hotel must be replaced every five years at an estimated cost of $3,250,000 (at time =0,5, and 10 . The old furnishings have no market value. Annual operating and maintenance expenses for the hotel are estimated to be $400,000. The market value of the hotel atter 15 years is estimated to be $3,000,000, Rooms at the hotel are projected to be rented at an average rate of $90 per night. On the average, the hotel will rent 60% of its rooms each night. Assume the hotel will be: open 365 days per year. MARR is 15% per year. Graphically show the sensitwity of Present Worth to changes in the following factors: 1. periodic refurnishing cost, 2. annual expenses, and 3. occupancy rate (average percentage of rooms rented each nightl. On your graph, use percent change as the x-axis and PW as the y-axis. Your graph should include: 1. The PW when none of the factors are changed ( y-intercept). 2. The sensitivity with respect to decision reversal should be noted for each factor (the x-intercepts). Inchude your supporting calculations

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Financial Management

Authors: James C. Van Horne

10th Edition

0138596875, 978-0138596873

More Books

Students also viewed these Finance questions