Cash flow: Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment. The equal annual net cash flows from operating the hotel.

Question

Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $64 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $14 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 10%. 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% 10% 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 2.57710 2.53129 2.48685 2.44371 2.40183 2.36115 3.31213 3.23972 3.16987 3.10245 3.03735 2.97447 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 5.20637 5.03295 4.86842 4.71220 4.56376 4.28830…

Answer 1

Question

Chapter 11, Problem 9E

(a)

To determine

Cash flow:

Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment.

The equal annual net cash flows from operating the hotel.

(b)

To determine

To calculate: The net present value of the hotel using the present value of an annuity of $1 table found in Appendix A.

(c)

To determine

To explain: If the analysis supports the construction of the new Hotel.

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Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $64 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $14 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 10%. 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% 10% 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 2.57710 2.53129 2.48685 2.44371 2.40183 2.36115 3.31213 3.23972 3.16987 3.10245 3.03735 2.97447 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 5.20637 5.03295 4.86842 4.71220 4.56376 4.28830…

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? Yes because the net present value is positive