Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Net Present Value Method - Annuity for a Service Company Welcome Ton Hotels is considering the construction of a new hotel for $63 million. The

image text in transcribed
image text in transcribed
Net Present Value Method - Annuity for a Service Company Welcome Ton Hotels is considering the construction of a new hotel for $63 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to eam revenues of $19 million per year. Total expenses, including depreciation, are expected to be $13 million per year. Welcome Inn management has set a minimum acceptable rate of return of 11%. Assume straight-line depreciation, a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. million 13% 14% 0.88496 0.87719 1.64666 1.66810 2.36115 2.32163 2.91371 2.97447 Present Value of an Annuity of $1 at Compound Interest Periods 8% 9% 10% 11% 12% 1 0.92593 0.91743 0.90909 0.90090 0.89286 2 1.78326 1.75911 1.73554 1.71252 1.69005 3 2.52710 2.53129 2.48685 2.44371 2.40183 4 3.31213 3.23972 3.16982 3.10245 3.03735 5 3.99271 3.88965 3.79079 3.69590 3.60478 6 4.62288 4.48592 4.35526 4.23054 4.11141 7 5. 20637 5.03295 4.86842 4.71220 4.56376 B 5.74664 5.53482 5.33493 5.14612 4.96764 9 6.24689 5.99525 5.75902 5.53705 5.32825 10 6.71008 6.41766 6.14457 5.88923 5.65022 3.51723 3.43308 3.99755 3.88867 4.42261 4.28830 4.79677 4.63836 5.13166 4.94637 5.42624 5.21612 b. Calculate the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: $ million c. Does your analysis support the purchase of the new hotel? because the net present value is

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

HRD Score Card 2500 Based On HRD Audit

Authors: T V Rao

1st Edition

8178298368, 978-8178298368

More Books

Students also viewed these Accounting questions

Question

Choose an appropriate organizational pattern for your speech

Answered: 1 week ago

Question

Writing a Strong Conclusion

Answered: 1 week ago