Question
Answer both questions attached please regarding net present value, accounting course questions. eBook Net Present Value Method?Annuity Keystone Hotels is considering the construction of a
eBook Net Present Value Method?Annuity Keystone Hotels is considering the construction of a new hotel for $120 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $47 million per year. Total expenses, including depreciation, are expected to be $32 million per year. Keystone management has set a minimum acceptable rate of return of 14%. Assume straight-line depreciation. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. $million b. Calculate the net present value of the new hotel. Use 7.003 for thepresent value of an annuityof $1 at 14% for 30 periods. Round to the nearest million dollars. Net present value of hotel project: $million |
7/24/2016 CengageNOW | Online teaching and learning resource from Cengage Learning 1. eBook 2. Net Present Value Method 3. The following data are accumulated by Bannister Company in evaluating the purchase of 4. $48,500 of equipment, having a fouryear useful life: Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. (If required, round to the nearest dollar.) Use the table of the present value of $1 presented above. Present value of net cash flow $ Less amount to be invested $ Net present value $ b. Would management be likely to look with favor on the proposal? Yes The net present value indicates that the return on the proposal is greater than the minimum desired rate of return of 15%. Hide Feedback Partially Correct Check My Work Feedback http://sjc.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do 2/3 7/24/2016 CengageNOW | Online teaching and learning resource from Cengage Learning a. Multiply the present value of $1 factor for each year (Exhibit 1) by that year's net cash flow. Subtract the amount to be invested from the total present value of the net cash flow. Will management be more favorable to a positive net present value or a negative net present value? b. Consider the time value of money. Learning Objective 3. Hint(s) Check My Work Icon Key Exercise 25-7 Question 3 of 4 mail Intructor ave Cengage Learning http://sjc.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do xit umit Aignment for Grading Cengage Technical Support 3/3
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