Question
Purchased land 3 yrs ago for $65,000 and the market value is now $80,000. You are considering building a hotel instead of selling. To build
Purchased land 3 yrs ago for $65,000 and the market value is now $80,000. You are considering building a hotel instead of selling. To build the hotel, it will initially cost $100,000, an expense that you plan to depreciate straight line over the next 3 yrs. Wells Fargo offers a loan for $60,000 at an 8% interest rate to repaid over the next 4 yrs. You anticipate that the hotel will earn Revenues of $215,000 each year while expenses will be $25,000 each year. The initial working capital requirement will be $6,000 which will recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 10%. What is the net present value of this project?
Steps please -
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