Case 5-2: Executive Inn Sarah Adams manages Executive Inn of Toronto, a 200-room facility that rents furnished suites to executives by the month. The market is for people relocating to Toronto and waiting for permanent housing. Adams's compensation contains a fixed component and a bonus based on the net cash flows from operations. She seeks to maximize her compensation. Adams likes her job and has learned a lot, but she expects to be working for a financial institution within five years. Adams's occupancy rate is running at 98 percent, and she is considering a $10 million expansion of the present building to add more rental units. She has very good private knowledge of the future cash flows. In year 1, they will be $2 million and will decline $100,000 a year. The following table summarizes the expansion's cash flows: Page 208 Net Cash Flow Net Cash Flow Year (Millions) Year (Millions) 0 $(10.0) 6 3 1.5 1 2.0 7 1.4 2 1.9 8 1.3 3 1.8 9 1.2 4 1.7 10 1.1 5 1.6