Howard wants to decide between building Inn A or Inn B.The following are projected cash flows for the inns.

YearInn AInn B

0(7,500,000)(10,000,000)

12,000,0001,800,000

21,800,0001,600,000

32,500,000 2,000,000

41,800,0001,700,000

51,500,0002,100,000

61,400,0001,800,000

71,500,0001,200,000

81,200,0001,100,000

91,100,0001,700,000

101,600,0001,200,000

1.What is the payback period for Inn A and Inn B?If Howard requires a payback period of 5 years, which inn(s) should he acquire? Round answer to hundredths place (for example: 12.34).

PaybackPayback

Inn A = Inn B = Acquire?

2.Calculate the WACC for Howard's Hotels.Assume 15% cost of debt, 10% required return on preferred stocks, and 13% required return on common stocks.Also assume 40% taxes.Round answer to the tenths place (for example: 12.3%).

WACC =

3.Calculate the Net Present Value for Inn A and Inn B.Use the WACC as the cost of capital % calculated in 5 above.

Inn AInn B

0

1

2

3

4

5

6

7

8

9

10

Total

Which inn should he build?

4.What is the Internal Rate of Return (IRR) for Inn A and Inn B? Round answer to hundredths place (for example: 12.34%).

IRR Inn AIRR Inn B

Which inn should he build?