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Assume the Townsend Hotel is evaluating whether it should invest $10,000,000 in renovations. The project would increase cash flows from operations for 5 years. The investment will have no salvage value. Townsend uses a 12% hurdle rate. Other information is given below.

Requirement 7: Read the article, The Townsend invests to keep athletes, executives, celebrities coming back and then answer the following questions adding lines as needed (https://www.crainsdetroit.com/hospitality/townsend-invests-keep-athletes-executives-celebrities-coming-back?utm_source=crain-s-early-access&utm_medium=email&utm_campaign=20181125&utm_content=article2-readmore).

A. Where is the Townsend Hotel located?

B. What is the range of nightly room rates for the Townsend Hotel?

C. What is the Townsends average occupancy rate compared with the average occupancy of other Detroit area hotels?

D. List five of the luxuries offered by the Townsend:

1.

2.

3.

4.

5.

E. List three people from the article who have stayed at the Townsend

1.

2.

3.

Year 1 Year 2 Year 3 Year 4 Year 5 Cash inflow from operations S 2,700,000 S 3,250,000S3,200,000 $3,500,000 S 3,500,000 Depreciation on tax return2,000,000 Depreciation on financial statements Net income from investmernt PV Factor using 12% 1,800,000 1,200,000600,000 1000,0002,000,000 2,000,000 2,000,0002,000,000 3,200,000 1,700,000 1,250,0001,200,000 1,500,0001,500,000 Requirement 1: Input the PV Factors in the above schedule using 12% for years 1-5. These factors can be obtained from the present value tables. (5 points) Requirement 2: Compute the annual net after-tax cash inflows. We will use the alternative computations described on page 450 where we subtract the cash income tax payments from the cash inflows from operations. To start, we need to compute the annual cash income tax payments which are 30% of the cash inflow from operations less the tax return depreciation. Year 1 is done for you Complete this schedule (5 points Year 1 Year 2 Year 3 Year 4 Year 5 Cash inflow from operations$2,700,000 re-tax Depreciation on tax retun (2,000,000) Taxable income Tax rate Cash payment for income taxes 700,000 30% $210,000 Make sure to show dollar signs on the first and last number of each column and format your numbers with commas and underlines on all schedules Now that we know the cash payment for income taxes, we can compute the after-tax cash flows Complete the schedule below (5 points Year 1 Year 2 Year 3 Year 4 Year 5 Cash inflow from operations Cash payment for income taxes After-tax cash flows Requirement 3 Compute the net present value and indicate whether it is positive or negative (round amounts to nearest dollar). Complete the schedule below (10 points Year Annual net after-tax cash inflows PV Factor Present Value 2 4 Total present value Investment required Net positive present value Requirement 4: Compute the cash payback period. Complete the following schedule. (5 points) Year Annual net after-tax cash inflows Cumulative Cash Payback 2 4 Requirement 5 Annual net income from investment Compute the average rate of return by completing the schedule below. (5 points) Year Amount 2 4 Total Average annual net income from investments Average investment Average rate of return Requirement 6: Based upon your results for Requirements 3, 4 and 5, would you recommend the Townsend Hotel make this $10,000,000 investment? Explain using complete sentences. (5 points)

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