A nationwide motel chain is considering locating a new motel in?Bigtown, USA. The cost of building a 150?-room motel?(excluding furnishings) is ?$5.4 million. The firm uses a 15?-year planning horizon to evaluate investments of this type. The furnishings for this motel must be replaced every five years at an estimated cost of ?$1,850,000 ?(at k=?0, 5?, and 10?). The old furnishings have no market value. Annual operating and maintenance expenses for the facility are estimated to be $125,000. The market value of the motel after 15 years is estimated to be 25?% of the original building cost. Rooms at the motel are projected to be rented at an average rate of ?$45 per night. On the?average, the motel will rent 55?% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 6?% per year.
a. Using an?annual-worth measure of?merit, is the project economically?attractive?
b. Investigate sensitivity to decision reversal for the following three?factors: (1) capital?investment, (2)?MARR, and?(3) occupancy rate?(average percent of rooms rented per?night). To which of these factors is the decision most?sensitive? Assume that the market value remains constant at the amount used in part a.
c. Graphically investigate the sensitivity of the AW to changes in the above three factors. Investigate changes over the interval
50?%. On your?graph, use percent change as the?x-axis and AW as the y?-axis.
A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 150-room motel (excluding furnishings) is $5.4 million. The firm uses a 15-year planning horizon to evaluate investments of this type. The furnishings for this motel must be replaced every five years at an estimated cost of $1,850,000 (at k = 0, 5, and 10). The old furnishings have no market value. Annual operating and maintenance expenses for the facility are estimated to be $125,000. The market value of the motel after 15 years is estimated to be 25% of the original building cost. Rooms at the motel are projected to be rented at an average rate of $45 per night. On the average, the motel will rent 55% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 6% per year. a. Using an annual-worth measure of merit, is the project economically attractive? b. Investigate sensitivity to decision reversal for the following three factors: (1) capital investment, (2) MARR, and (3) occupancy rate (average percent of rooms rented per night). To which of these factors is the decision most sensitive? Assume that the market value remains constant at the amount used in part a. c. Graphically investigate the sensitivity of the AW to changes in the above three factors. Investigate changes over the interval +50%. On your graph, use percent change as the x-axis and AW as the y-axis Click the icon to view the interest and annuity table for discrete compounding when the MARR is 6% per year. a. Calculate the AW value for the project. AW(6%) = $ | thousand (Round to one decimal place.) Based on the AW value, the project economically feasible. b. Investigate sensitivity to decision reversal. (Round to one decimal place.) Factor Sensitivity with respect to Decision Reversal Capital investment MARR 7% Occupancy rate The decision is most sensitive to changes in c. Plot the AW of each alternative against the changes in the above three factors. Use the line drawing tool to plot the lines that represent the AW value for each factor. Use the range from - 30% to 30% change for your plot. Be sure to properly label your lines 1000000- 800000- Annual Worth -60-50-40 -30 -20-10 0 10 20 30 40 50 60 % ChangeDiscrete Compounding; i=6% Single Payment Uniform Series Compound Compound Sinking Capital Amount Present Amount Present Fund Recovery Factor Worth Factor Factor Worth Factor Factor Factor To Find F To Find P To Find F To Find P To Find A To Find A Given P Given F Given A Given A Given F Given P N FIP PIF FIA PIA AIF AIP 1.0600 0.9434 1.0000 0.9434 1.0000 1.0600 1.1236 0.8900 2.0600 1.8334 0.4854 0.5454 1.1910 0.8396 3.1836 2.6730 0.3141 0.3741 1.2625 0.7921 4.3746 3.4651 0.2286 0.2886 1.3382 0.7473 5.6371 4.2124 0.1774 0.2374 1.4185 0.7050 6.9753 4.9173 0.1434 0.2034 1.5036 0.6651 8.3938 5.5824 0. 1191 0. 1791 1.5938 0.6274 9.8975 6.2098 0.1010 0.1610 1.6895 0.5919 11.4913 6.8017 0.0870 0.1470 10 1.7908 0.5584 13.1808 7.3601 0.0759 0.1359 11 1.8983 0.5268 14.9716 7.8869 0.0668 0.1268 12 2.0122 0.4970 16.8699 8.3838 0.0593 0.1193 13 2.1329 0.4688 18.8821 8.8527 0.0530 0.1130 14 2.2609 0.4423 21.0151 9.2950 0.0476 0.1076 15 2.3966 0.4173 23.2760 9.7122 0.0430 0.1030
