Net present value method-annuity for a service company Stay-In-Style (SIS) Hotels Inc. is considering the construction of a new hotel for $30 million. The expected life of the hotel is 10 years, with no residual value. The hotel is expected to earn revenues of $25 million per year. Total expenses, including straight-line depreciation, are expected to be $20 million per year. Stay-In-Style Hotels' management has set a minimum acceptable rate of return of 20%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. 8 million Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 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 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 b. Compute 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. Net present value of hotel project: $ 22 X million c. Does your analysis support construction of the new hotel? Yes , because the net present value is positive Feedback