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Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $3,220,000; Value Lodges estimates furnishings for the motel will cost an additional $520,000 and will require replacement every 5 years. Annual operating and maintenance costs for the motel are estimated to be $120,000. The average rental rate for a unit is anticipated to be $25/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900,000 at the end of 15 years. This estimated salvage value assumes that the furnishings are not new. Furnishings have no salvage value at the end of each 5-year replacement interval. Assuming average daily occupancy percentages of 50%, 60%, 70%, and 80% for years 1 through 4, respectively, and 90% for the 5th through 15th years, a MARR of 7%/year, 365 operating days/year, and ignoring the cost of land, should the motel be built?
Base your decision on an annual worth analysis. AW = $ ............... (in thousands)
You are the CEO of a company that has hired a new sales manager in the last year. The company’s sales have increased by 60 percent during that time; however, the company’s average collection period has increase from twelve days to thirty-five days. I..
A power put option pays off [max(X-ST,0)]2 at time T, where ST is the stock price at time T and X is the exercise price. A stock price is currently $30. It is known that at the end of one year it will be either $34 or $26. The risk-free rate of inter..
Foamsoft sells customized boat shoes. Currently, it sells 16,850 pairs of shoes annually at an average price of $79 a pair. It is considering adding a lower-priced line of shoes but will sell for $49 a pair. Foamsoft estimates it can sell 5,000 pairs..
You want to be a millionaire when you retire in 35 years. How much do you have to save each month if you can earn an annual return of 11.2 percent? How much do you have to save each month if you wait 10 years before you begin your deposits?
When comparing option hedging (hedging with options) to futures hedging (hedging with futures), which statement is most true:
Sea Masters Co. issued $1000 par value bonds with a 8 percent coupon. The bond pays interest semi-annually and has 20 years remaining to its maturity date. If the market demands 9.7 percent required rate on the bond, what is the price of the bond?
Assuming the interest of the only finance charge, how much interest would be paid on a $5000 investment loan to be repaid in 12 in 36 monthly instalments of $166.10? What is the APR on this loan?
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt and $30 million of common equity. The firm has 500,000 shares of common stock outstanding. Sand Key is planning a major expansion and will need to raise $15 mi..
A firm wishes to maintain an internal growth rate of 6.9 percent and a dividend payout ratio of 20.0 percent. The current profit margin is 5.3 percent, and the firm uses no external financing sources. What must total asset turnover be?
The Talley Corporation had a taxable income of $385,000 from operations after all operating costs but before: (1) interest charges of $77,000, (2) dividends received of $19,250, (3) dividends paid of $15,400, and (4) income taxes.. What are the firm'..
Suppose the real rate is 3.5 percent and the inflation rate is 5.1 percent. What rate would you expect to see on a Treasury bill? (Round your answer to 2 decimal places. (e.g., 32.16))
Suppose your firm is evaluating four potential new investments. You calculate that theseprojects, Q, X, Y, and Z, have the NPV and IRR figures given below: Project Q: NPV = $1,000 IRR = 16%Project X: NPV = -$4,000 IRR = 12% Which project(s) should..
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