Calculate payback period if the after-tax rate of return

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Reference no: EM131943173

A young entrepreneur is planning to open a budget hotel with a start-up capital of RM 300,000. The hotel will have single-bed rooms with an expected rate of RM 80 per room. An average room occupancy rate is about 210 per month. Annual operating expenses for which cover administration, utility and maintenance costs are about RM 80,000. The cash flows will be expected to remain unchanged for the next 10 years. The applicable tax rate is 30% and a total of 10,000 in tax-deductible depreciation are allowed every year.

b. Calculate the payback period if the after-tax rate of return of 20 % is expected.

c. If the after tax minimum attractive rate of return of 30 % per year is required, what is the new room rate?

Reference no: EM131943173

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