Net Present Value Method-Annuity for a Service Company Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. $ million b. Calculate the net present value of the new hotel. Use 7.00266 for the present value of an annuity of $1 at 14% for 30 periods. 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: $ 8 million c. Does your analysis support construction of the new hotel? because the net present value is positive Yes

Net Present Value Method-Annuity for a Service Company Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. $ million b. Calculate the net present value of the new hotel. Use 7.00266 for the present value of an annuity of $1 at 14% for 30 periods. 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: $ 8 million c. Does your analysis support construction of the new hotel? because the net present value is positive Yes

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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