Net Present Value Method—Annuity for a Service CompanyAmenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million per year. Total expenses, including depreciation, are expected to be $23 million per year. Amenity Hotels’ management has set a minimum acceptable rate of return of 14%.a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars.$ ________ millionb. Compute the net present value of the new hotel. Use 6.87293 for the present value of an annuity of $1 at 14% for 25 periods. Round to the nearest million dollars.Net present value of hotel project: $ _______ millionc. Does your analysis support construction of the new hotel?Yes , because the net present value is positive . Net Present Value Method-Annuity for a Service CompanyAmenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 millionper year. Total expenses, including depreciation, are expected to be $23 million per year. Amenity Hotels' 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.millionb. Compute the net present value of the new hotel. Use 6.87293 for the present value of an annuity of $1 at 14% for 25 periods. Round to the nearest million dollars.Net present value of hotel project: $millionc. Does your analysis support construction of the new hotel?Yes v , because the net present value is positive v

Equal annual net cash flows = Revenue earned - Expenses including depreciation + Depreciation

Answered: Net Present Value Method

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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Net Present Value Method—Annuity for a Service Company

Amenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million per year. Total expenses, including depreciation, are expected to be $23 million per year. Amenity Hotels’ 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. Compute the net present value of the new hotel. Use 6.87293 for the present value of an annuity of $1 at 14% for 25 periods. Round to the nearest million dollars.

Net present value of hotel project: $ _______ million

c. Does your analysis support construction of the new hotel?
Yes , because the net present value is positive .

Net Present Value Method-Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million
per year. Total expenses, including depreciation, are expected to be $23 million per year. Amenity Hotels' 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. Compute the net present value of the new hotel. Use 6.87293 for the present value of an annuity of $1 at 14% for 25 periods. Round to the nearest million dollars.
Net present value of hotel project: $
million
c. Does your analysis support construction of the new hotel?
Yes v , because the net present value is positive v

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