The Georgio Hotel Corporation is considering replacing its old hot tub with a new one at a cost of $30,000. With the new hot tub, the company expects to save $5,000 in maintenance costs per year, all cash savings. These savings in maintenance costs represent both an increase in cash flow and an increase in incremental operating income. The new hot tub has an estimated useful life of 7 years with no residual value. The company's required rate of return is 14%. The old hot tub has no residual value.

Do not enter dollar signs or commas in the input boxes.
Use the present value tables found in the textbook appendix.
Use the negative sign for negative values.
Round all answers to 2 decimal places.

a) Assume the company wants to recover their initial investment on the new hot tub in seven years. Based on the payback method, should the hotel purchase the new hot tub?

Cash Payback Period: Answer years
Should the hotel purchase the new hot tub?: AnswerNoYes

b) If the ARR method is used, should Georgio Hotel purchase the new hot tub?

ARR: Answer %
Should the hotel purchase the new hot tub?: AnswerNoYes

c) If the NPV technique was used, should Georgio Hotel purchase the new hot tub?

Round your answer to the nearest whole number.

NPV: $Answer
Should the hotel purchase the new hot tub?: AnswerNoYes

Answer rating: 100% (QA)

Answers A YES B YES C NO A Calculation of Payback Period Payb... View the full answer