Net Present Value Method - Annuity Take a Load Off Hotels is considering the construction of a new hotel for $15,000,000. The expected life of the hotel is 10 years with no residual value. The hotel is expected to eam devenues of $8,580,000 per year. Total expenses, including straight-line depreciation, are expected to be $7,500,000 per year. Take a load off's management has set a minimum acceptable rate of return of 12%. a. Determine the equal annual net cash flows from operating the hotel. b. Calculate the net present value of the new hotel, using the present value factor of an annuity of $1 table below. It required, round to the nearest dollar. If the net present value is negative, enter the amount using a minus sign Present Value of an Annuity of si at Compound Interest 69 Year 10% 1296 15% 209 1 0.009 0.870 0.943 0.893 0.833 1.833 1.525 1.500 2 1.735 1.626 2402 2293 2.105 2.4487 3 2.673 3.027 2.589 2.855 4 3.170 3.465 2.991 3.791 3.353 4.212 5.505 3.785 3.326 4.111 4355 4.017 3.505 5.582 4.868 4492 3.83 5 335 4.965 TAM Grace My Working JU 3.03 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.160 3.605 6.210 4.868 4.564 5.335 4.958 5.759 5.328 4.487 3.837 9 6.802 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Annual net cash flow Present value of annual hotel project cash flows Less hotel construction costs Net present value of hotel project c. Which of the following statements is correct regarding this potential project? a. They should build the hotel because the present value of the hotel's operating cash flows exceeds the construction cost b. They should build the hotel because the present value of the hotel's operating cash flows is less than the construction costs. c. They should build the hotel because the present value of the hotel's operating cash flow is equal to the construction costs d. They should not build the hotel because the net present value is negative > Previous