Assume that your hotel decided to add new menu items to the restaurant's menu. This project will require your hotel to purchase new kitchen equipment.The hotel owners expect all projects conducted in this company to meet the following decision criteria:Payback period < 3 yearsNPV > $0IRR > the company’s required rate of return which is 8%.The estimated kitchen equipment cost is $15,000 (Year 0), and incremental cash flows from this project (Year 1-5) are listed in the table. Cash Flow ($)Cumulative Cash Flow ($)Year 0-15,000 Year 110,000 Year 23,000 Year 33,000 Year 4300 Year 5300 15. What is the Net Present Value (NPV) ($)?Note: Do not include $, commas, years, or %, when you type your answers. Round your answer to two decimal places. If your answer is a negative number, you MUST include a negative sign.

Net present value: It is sum of present value of all future cash flows (positive and negative)…

Answered: Assume that your hotel decided to add…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume that your hotel decided to add new menu items to the restaurant's menu. This project will require your hotel to purchase new kitchen equipment.

The hotel owners expect all projects conducted in this company to meet the following decision criteria:
- - Payback period < 3 years
  - NPV > $0
  - IRR > the company’s required rate of return which is 8%.

The estimated kitchen equipment cost is $15,000 (Year 0), and incremental cash flows from this project (Year 1-5) are listed in the table.

	Cash Flow ($)	Cumulative Cash Flow ($)
Year 0	-15,000
Year 1	10,000
Year 2	3,000
Year 3	3,000
Year 4	300
Year 5	300

15. What is the Net Present Value (NPV) ($)?

Note: Do not include $, commas, years, or %, when you type your answers. Round your answer to two decimal places. If your answer is a negative number, you MUST include a negative sign.

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Based on your answers and the decision criteria, determine whether you will accept or reject this project.

1) Accept

2) Reject

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