A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 160-room motel (excluding furnishings) is $5.4 million. The firm uses a 15-year planning horizon to evaluate investments of this type. The fumishings 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 $135,000. The market value of the motel after 15 years is estimated to be 25% of the original building cost. Rooms at the motel are projected to be rented a an average rate of $45 per night. On the average, the motel will rent 65% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 8% per year. a. Using an annual-worth measure of merit, is the project economically attractive?
A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 160-room motel (excluding furnishings) is $5.4 million. The firm uses a 15-year planning horizon to evaluate investments of this type. The fumishings 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 $135,000. The market value of the motel after 15 years is estimated to be 25% of the original building cost. Rooms at the motel are projected to be rented a an average rate of $45 per night. On the average, the motel will rent 65% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 8% per year. a. Using an annual-worth measure of merit, is the project economically attractive?
Chapter1: Making Economics Decisions
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![A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 160-room motel (excluding funishings) is $5.4 million. The firm uses a 15-year planning horizon to evaluate
investments of this type. The fumishings 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 $135,000. The market value of the motel after 15 years is estimated to be 25% of the original building 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 65% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 8% per year.
a. Using an annual-worth measure of merit, is the project economically attractive?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2a333fd5-9a3d-49c1-9522-e4ef4aa71e24%2F78585bc6-c32e-410f-830c-0af5d728855d%2F9u75z1c_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A nationwide motel chain is considering locating a new motel in Bigtown, USA. The cost of building a 160-room motel (excluding funishings) is $5.4 million. The firm uses a 15-year planning horizon to evaluate
investments of this type. The fumishings 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 $135,000. The market value of the motel after 15 years is estimated to be 25% of the original building 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 65% of its rooms each night. Assume the motel will be open 365 days per year. MARR is 8% per year.
a. Using an annual-worth measure of merit, is the project economically attractive?
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