Keystone Hotels is considering the construction of a new hotel for $ 120 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $ 47 million per year. Total expenses, including depreciation, are expected to be $ 32 million per year. Keystone management has set a minimum acceptable rate of return of 14%.
a. Determine the equal annual net cash flows from operating the hotel.
b. 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.
c. Does your analysis support construction of the new hotel?

  • CreatedJune 27, 2014
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