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Compute the net present value of the new hotel

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Reference no: EM132717900

Problem - Amenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million per year. Total expenses, including depreciation, are expected to be $23 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 14%.

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

b. Compute the net present value of the new hotel, using the present value of an annuity table.

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

Reference no: EM132717900

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