Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $48 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $14 million per year. Total expenses, including depreciation, are expected to be $10 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 12%. a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places. $1 million Present Value of an Annuity of $1 at Compound Interest Periods 8% 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 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 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: $ million c. Does your analysis support construction of the new hotel? because the net present value is
Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $48 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $14 million per year. Total expenses, including depreciation, are expected to be $10 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 12%. a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places. $1 million Present Value of an Annuity of $1 at Compound Interest Periods 8% 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 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 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: $ million c. Does your analysis support construction of the new hotel? because the net present value is
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Homework, Chapter 26
Net Present Value Method-Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $48 million.
The expected life of the hotel is 8 years with no residual value. The hotel is expected
to earn revenues of $14 million per year. Total expenses, including depreciation, are
expected to be $10 million per year. Amenity Hotels' management has set a
minimum acceptable rate of return of 12%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your
answer in million. Round your answer to two decimal places.
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
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: $
million
c. Does your analysis support construction of the new hotel?
because the net present value is
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