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%. Determine the equal annual net cash flows from operating the hotel. Calculate the net present value of the new hotel, using the present value of an annuity of $1 table found in Appendix A. (Round to the nearest million dollars.) Does your analysis support construction of the new hotel? Explain.
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%. Determine the equal annual net cash flows from operating the hotel. Calculate the net present value of the new hotel, using the present value of an annuity of $1 table found in Appendix A. (Round to the nearest million dollars.) Does your analysis support construction of the new hotel? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- 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 acceptablerate of return of 14%. - Determine the equal annual net
cash flows from operating the hotel. - Calculate the
net present value of the new hotel, using the present value of an annuity of $1 table found in Appendix A. (Round to the nearest million dollars.) - Does your analysis support construction of the new hotel? Explain.
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Step 1 introduction
VIEWStep 2 Calculation of Annual Depreciation
VIEWStep 3 Calculation of Equal annual net cash flows from operating the hotel
VIEWStep 4 Present value annuity factor table @ ( 14%,30years)
VIEWStep 5 Calculation of the net present value of the new hotel
VIEWStep 6 Does your analysis support construction of the new hotel?
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