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Why the furnishing cost is discounted as -1875000 (A/P, 10% 5)? Why not -1875000 (A/P, 10%,15) -1875000 (P/F, 10%, 5) (A/P, 10%, 15) - 1875000
Why the furnishing cost is discounted as -1875000 (A/P, 10% 5)?
Why not -1875000 (A/P, 10%,15) -1875000 (P/F, 10%, 5) (A/P, 10%, 15) - 1875000 (P/F, 10%, 10) (A/P, 10%, 15)?
Anationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 150-room motel (excluding furnishings) is $5 million. The firm uses a 15-year planning horizon to evaluate investments of this type. The furnishings for this motel must be replaced every five years at an estimated cost of $1,875,000 (at k 0, 5, and 10). The old furnishings have no market value. Annual operating and maintenance expenses for the facility are estimated to be $125,000. The market value of the motel after 15 years is estimated to be 207c of the original buildina cost. Rooms at the motel are projected to be rented at an average rate of $45 per night. On the average, the motel will rent 607o of its rooms each night. Assume the motel will be open 365 days per year. MARR is 10% per year. (Problem) a. Using an annual-worth measure of merit, is the project economically attractive? The annual total revenue earned from the project is: Total Revenue (150 rooms)(0.6) (S45/ day) (365days / year) -$1,478,250/year Hence, the annual worth of the project is: AW(10%)-$1,478, 250+(0.2)($5,000,000)(A1F,10%, 15)-$125,000 -$5,000,000(A/ P, 10%, 15)-$1.875.000 (A1P, 10%, 5) -$1,478,250 (0.2) (S5,000,000) (0.0315)-S125,000 -$5,000,000 (0.1315)-S1,875,000 (0.2638) $1,478,250 $31,500- $125,000- $657,500- $494,625 - $232,625 AW (10%) > 0, the project is economically attractive. SinceStep by Step Solution
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