Question
Owners of a motel chain are considering building a new 200-unit motel in Anaheim, CA. The present worth cost of building the motel is $8,000,000;
Owners of a motel chain are considering building a new 200-unit motel in Anaheim, CA. The present worth cost of building the motel is $8,000,000; the firm estimates furnishings for the motel will cost an additional $800,000 and will require replacement every 5 years. Annual operating and maintenance costs for the facility are estimated to be $800,000. The average rate for a unit is anticipated to be $60/day. A 15-year planning horizon is used by the firm in evaluating new ventures of this type; a terminal salvage value of 15% of the original building cost is anticipated; furnishings are estimated to have no salvage value at the end of each 5-year replacement interval. Assuming an average daily occupancy percentage of 80%, a MARR of 12%, 365 operating days/year, and ignoring the cost of the land, what is the present worth, internal rate of return, and external rate of return? (Assume the furnishings are not replacement at EOY 15.)
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