Amenity Hotels Inc. is considering the construction of a new hotel for $63 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $13 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 11%. a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places. 13.875 x million Present Value of an Annuity of $1 at Compound Interest Periods 8% 9% 10% 11% 12% 13% 14% 1. 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 0.87719 2 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 1.64666 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 3.99271 3.88965 3.79079 3.69590 3.60478 3.51723 3.43308 6 4.62288 4.48592 4.35526 4.23054 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 6.24689 5.99525 5.75902 5.53705 5.32825 5.13166 4.94637 10 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: $ 840,215 x million c. Does your analysis support construction of the new hotel?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Net Present Value Method-Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $63 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to
earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $13 million per year. Amenity Hotels' management has set a minimum
acceptable rate of return of 11%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places.
13.875 x million
Present Value of an Annuity of $1 at Compound Interest
Periods
8%
9%
10%
11%
12%
13%
14%
1.
0.92593
0.91743
0.90909
0.90090
0.89286
0.88496
0.87719
2
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
4.48592
4.35526
4.23054
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
10
6.71008
6.41766
6.14457
5.88923
5.65022
5.42624
5.21612
b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the
minus sign to indicate a negative net present value.
Net present value of hotel project: $ 840,215 x million
c. Does your analysis support construction of the new hotel?
Transcribed Image Text:Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $63 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $13 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 11%. a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places. 13.875 x million Present Value of an Annuity of $1 at Compound Interest Periods 8% 9% 10% 11% 12% 13% 14% 1. 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 0.87719 2 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 4.48592 4.35526 4.23054 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 10 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: $ 840,215 x million c. Does your analysis support construction of the new hotel?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Cash Flows
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education