Question
lease use the following information to answer the next three questions. Randi and John are partners in a 100-room limited service hotel. It has a
lease use the following information to answer the next three questions. Randi and John are partners in a 100-room limited service hotel. It has a great location right across from the beach. They are going to renovate the rooms floor by floor and the entire project has a cost of $1,200,000. The extra cash in-flows produced from this renovation are $395,000 per year for the next seven years. What is the projects regular payback period? If Randi and John have a set criterion to not invest in anything that will take more than 3 years to recover, should they invest in this project? Please explain using the decision criteria of payback (3 pts) and support with calculation (7pts) for full credit.
Assume the required return or Randi and John is 10%. What is the projects NPV? Should the team accept the project? Please explain using the decision criteria of NPV (3pt) and support with calculation (7pts) for full credit.
Assume the required return is now at 20%. What is the projects IRR? Should it be accepted? Please explain using the decision criteria of IRR (3pts) and support with calculation (7pts) for full credit.
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