# Question

Georgia Properties is considering purchasing a 50-room motel outside of Atlanta as an investment. The current owners state that the motel’s occupancy rate averages 80 percent each of the 300 days per year the motel is open. Each room rents for $ 70 per day, and variable cash operating costs are $ 20 per occupancy day. Fixed annual cash operating costs are $ 250,000. Savannah Roe, Georgia Properties’ owner, is considering paying $ 1,500,000 for the motel. Georgia Properties would keep the motel for 14 years and then dispose of it. Because the market for motels is difficult to predict, Roe estimates a zero salvage value at the time of disposal. Depreciation (rounded to the nearest dollar) will be taken on a straight-line basis for tax purposes. Roe’s tax rate is estimated at 25 percent for all years.

a. Determine the after-tax net present value of the motel to Georgia Properties, assuming a cost of capital rate of 10 percent.

b. What is the highest discount rate that will allow this project to be considered acceptable to Georgia Properties?

c. What is the minimum amount the net after-tax cash flows must be to allow the project to be considered acceptable by Georgia Properties, assuming a cost of capital rate of 10 percent?

d. What is the fewest number of years for which the net after-tax cash flows can be received and the project still be considered acceptable?

a. Determine the after-tax net present value of the motel to Georgia Properties, assuming a cost of capital rate of 10 percent.

b. What is the highest discount rate that will allow this project to be considered acceptable to Georgia Properties?

c. What is the minimum amount the net after-tax cash flows must be to allow the project to be considered acceptable by Georgia Properties, assuming a cost of capital rate of 10 percent?

d. What is the fewest number of years for which the net after-tax cash flows can be received and the project still be considered acceptable?

## Answer to relevant Questions

Three common organizational constraints are monetary capital, intellectual capital, and technology. Additionally, the environment in which the organization operates may present one or more types of constraints: cultural, ...Ten years ago, based on a pre-tax NPV analysis, Sante’s Sporting Goods decided to add a new product line. The data used in the analysis were as follows: Discount rate ................. 10%Life of product line ...Storey Corp. manufactures three products in a joint process. Each of the products can be sold at split-off or may be processed further. Using the following per unit information, determine which of the products should undergo ...Mae- Doff Designs uses a job order costing system to account for the various architectural services offered to commercial clients. For each major job, architectural models of the completed structures are built for client ...Nussbaum Inc. is a chemical company that is comprised of five independent divisions, located in three different countries. Divisional managers are evaluated based on divisional profitability. Home office functions include ...Post your question

0