60.1K

Verified Solution

Link Copied!

Net Present Value Method-Annuity for a Service Company Welcome Inn Hotels is considering the construction of a new hotel for $80 million. The expected life of the hotel i eam revenues of $21 million per year. Total expenses, including depreciation, are expected to be $16 million per year. Welcome In management has set a minimum acceptable rate of return of 8%. Assume straight-line depreciation. is 5 years with no residual value. The hotel is expected to a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars million Pre ant Value of an Annuity of $1 at Compound Interest Periods B% 9% 10% 11% 12% 13% 14% 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 0.87719 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 1.64666 3 2.57710 2.53129 2.48685 2.44371 2.40183 2.36115 2.32163 4 3.31213 3.23972 3.16987 3.10245 3.03735 2.97447 2.91371 5 3.99271 3.88965 3.79079 3.69590 3.60478 3.51723 3.43308 4.62288 4.485924.355264.23054 4.11141 3.99755 3.88867 7 5.20637 5.03295 4.86842 4.71220 4.56376 4.42261 4.28830 8 5.74664 5.53482 5.33493 5.14612 4.96764 4.79677 4.63886 9 6.24689 5.99525 5.75902 5.53705 5.32825 5.13166 4.94637 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 b. Calculate the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dolars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: milion c. Does your analysis support the purchase of the new hotel? Yes V:, because the net present value is positive V

Answer & Explanation Solved by verified expert

See Answer