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Calculate the net present value of the new hotel

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Reference no: EM132772298

Problem - Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%.

Required -

a. Determine the equal annual net cash flows from operating the hotel.

b. Calculate the net present value of the new hotel?

c. Does your analysis support construction of the new hotel? Explain.

Reference no: EM132772298

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