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?????? Take a Load Off Hotels is considering the construction of a new hotel for $19,600,000. The expected life of the hotel is 7 years
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Take a Load Off Hotels is considering the construction of a new hotel for $19,600,000. The expected life of the hotel is 7 years with no residual value. The hotel is expected to earn revenues of $17,696,000 per year. Total expenses, including straight-line depreciation, are expected to be $14,000,000 per year. Take a Load Off's nanagement has set a minimum acceptable rate of return of 20%. 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. If required, round to the nearest dollar. If the net present value is negative, enter the amount using a minus sign. 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 costs. 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 flows is equal to the construction costs. d. They should not build the hotel because the net present value is negative. Feedback Check 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 7 periods at 20%. Subtract the initial hotel investment. c. Recall whether management will be more favorable to a positive net present value or a negative net present valueStep by Step Solution
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