Reference no: EM133003054
Hotel Group is considering the refurbishment of their Executive Suites within each of their Brisbane CBD hotel chains. These extensive renovations are expected to attract a greater number of high-net-worth travellers, while only marginally increasing annual expenses. The project will require an initial investment of $5.2 million in total and is planned to be fully depreciated over a 15-year period. The firm's marginal tax rate is 30%.
Hotel Group currently secures an average of 825 bookings per annum, with travellers typically spending roughly $940 per visit. Operating expenses currently average $397,085 per annum. The project is anticipated to slightly increase Hotel Group's average number of bookings to 985 per annum, while considerably increasing traveller spending to $1,680 per visit. Operating expenses are projected to increase to $476,500 per annum. The firm anticipates they will scrap certain furniture at the end of the project for $85,000 in total.
Hotel Group's cost of capital for evaluation purposes is 8.5% per annum, with management preferring a payback period of 9 years or less on similar risk projects.
Required:
a) Calculate the projects' after-tax net operating cash flows for years 1 through to 15.
b) Calculate the project's after-tax termination cash flow in year 15.
c) Evaluate whether Hotel Group should accept this project using the Net Present Value (NPV) approach. Provide appropriate calculations, and briefly explain your answer.
d) Determine if the Internal Rate of Return (IRR) and Payback Period (PB) approaches contradict with NPV. Provide appropriate calculations, and briefly explain your answer.
What is the return on equity
: Sun Shade's has sales of $363,003, total assets of $323,500, and 3 pro?t margin of 14.6 percent- The ?rm has a total debt ratio of 54 percent. What is the retur
|
What is the firm wacc-yellow jersey corporation
: Yellow Jersey Corporation's optimal capital structure consists of 35 % debt , 10 % preferred stock , and 55% common equity . Yellow Jersey's investors expect th
|
How provide suggestions on how to make figures look better
: How Provide two suggestions on how to make figures look better. On 30 June 2018, your CEO was upset with the current figures.
|
What is the net present value of a project
: What is the net present value of a project with the following end-of-year cash flows if the discount rate is 12%?
|
Calculate the projects after-tax net operating cash flows
: Hotel Group is considering the refurbishment of their Executive Suites within each of their Brisbane CBD hotel chains. These extensive renovations are expected
|
Estimate what the direct labor cost was
: Estimate what the direct labor cost was? In May direct labor was 55% of conversion cost. If the manufacturing overhead for the month was $82,800.
|
Constant monthly payment for the rest of the contract
: Lisa can get a basic model of iPhone for $600 without having to sign up with a carrier. If she signs a contract with Verizon, she can get it for $200.
|
Are the deferred shareholders entitled to voting rights
: Are the deferred shareholders entitled to voting rights and dividend payout?
|
Find what are equivalent units of production for materials
: Work in process inventory, May 1 (55% complete) 63000. What are the equivalent units of production for materials during May?
|