Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 130-room motel (excluding furnishings) is $5 million.

image text in transcribed

A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 130-room motel (excluding furnishings) is $5 million. The firm uses a 12-year planning horizon to evaluate investments of this type. The furnishings for this motel must be replaced every four years at an estimated cost of $1,925,000 (at k = 0, 4, and 8). The old furnishings have no market value. Annual operating and maintenance expenses for the facility are estimated to be $115,000. The market value of the motel after 12 years is estimated to be 15% of the original building cost. Rooms at the motel are projected to be rented at an average rate of $50 per night. On the average, the motel will rent 65% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 10% 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 10% per year

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

Multinational Business Finance

Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett

10th Edition

0201785676, 9780201785678

More Books

Students also viewed these Finance questions

Question

Question 1 (a2) What is the reaction force Dx in [N]?

Answered: 1 week ago

Question

Cite the reasons employees join unions.

Answered: 1 week ago