Detremine the maximum cost of capital

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Reference no: EM1312107

Decision making regarding addition of new facilities for a business.

You are considering adding a new conference room to your hotel. If you do not invest in this new conference room, your cash flows will be as follows:

Years	0	1	2	3	4	5
Cash flows without investment	0	120	125	127	129	132

On the other hand, if you decide to invest in the conference room, your cash flows, including the investment cost and additional revenues, will be as follows:

Years	0	1	2	3	4	5
Cash flows with investment	-60	135	138	150	150	148

If your cost of capital is 18%, should you make the investment? What would be the maximum cost of capital you could afford in order to make the investment?

Reference no: EM1312107

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