Stay-In-Style (SIS) Hotels Inc. is considering the construction of a new hotel for $30 million. The expected life of the hotel is 10 years, with no residual value. The hotel is expected to earn revenues of $25 million per year. Total expenses, including straight-line depreciation, are expected to be $20 million per year. Stay-In-Style Hotels’ management has set a minimum acceptable rate of return of 20%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. fill in the blank 1 of 1$ million Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. Net present value of hotel project: fill in the blank 1 of 1$ million c. Does your analysis support construction of the new hotel? , because the net present value is
Stay-In-Style (SIS) Hotels Inc. is considering the construction of a new hotel for $30 million. The expected life of the hotel is 10 years, with no residual value. The hotel is expected to earn revenues of $25 million per year. Total expenses, including straight-line depreciation, are expected to be $20 million per year. Stay-In-Style Hotels’ management has set a minimum acceptable rate of return of 20%. a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars. fill in the blank 1 of 1$ million Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. Net present value of hotel project: fill in the blank 1 of 1$ million c. Does your analysis support construction of the new hotel? , because the net present value is
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Stay-In-Style (SIS) Hotels Inc. is considering the construction of a new hotel for $30 million. The expected life of the hotel is 10 years, with no residual value. The hotel is expected to earn revenues of $25 million per year. Total expenses, including straight-line
a. Determine the equal annual net
fill in the blank 1 of 1$ million
| Year | 6% | 10% | 12% | 15% | 20% |
|---|---|---|---|---|---|
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
b. Compute the
Net present value of hotel project: fill in the blank 1 of 1$ million
c. Does your analysis support construction of the new hotel?
, because the net present value is
.
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