Net Present Value Method-Annuity for a Service Company Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. million b. caculate the net present value of the new hotel. Use 7.00266 for the present value of an annuity of $1 at 14% for 30 periods. Round to the nearest million dollars. Net present value of hotel project: c. Does your analysis support construction of the new hotel? Yes million ,because the net present value is positive Feedback Chesk My Work a. Subtract the total expenses less the depreciation expense from the annual revenues. b. Multiply the annual net cash flow (from a) by the present value of an annuity factor for 30 periods at 14% (Appendix A) Subtract the initial hotel investment. c. Which is more favorable-a positive net present value or a negative net present value? Learning Objective 3. Previous Next