Robertson Resorts is considering whether to expand their Pagosa Springs Lodge. The expansion will create 24 additional
Question:
Robertson Resorts is considering whether to expand their Pagosa Springs Lodge. The expansion will create 24 additional rooms for rent. The following estimates are available:
| Cost of expansion | $ | 3,400,000 | |||||
| Discount rate | 9 | % | |||||
| Useful life | 20 | ||||||
| Annual rental income | $ | 1,750,000 | |||||
| Annual operating expenses | $ | 1,300,000 | |||||
Robertson uses straight-line depreciation and the lodge expansion will have a residual value of $2,400,000.
Required:
1. Calculate the annual net operating income from the expansion.
2. Calculate the annual net cash inflow from the expansion.
3. Calculate the ARR. (Round your answer to 2 decimal places.)
4. Calculate the payback period. (Round your answer to 1 decimal place.)
5. Calculate the NPV. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)
