Estimate annual operating and maintenance costs

Reference no: EM13182095

Value Lodges owns an economy motel chain and is considering building a new 200-unit model. The cost to build is estimated at $8,000,000; estimates for motel furnishings will cost an additional $700,000 and will require replacement every 5 years. Annual operating and maintenance costs are estimated to be $800,000. The estimate for the average rental rate per unit is $40/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900,000 at the end of 15 years. Furnishings have no salvage value at the end of each 5-year replacement interval. Assuming daily occupancy percentages of 50%, 60%, 70%, and 80% for years 1 through 4, respectively, and 90% for years 5 through 15, a MARR of 12%, 365 operating days per year, and ignorning land cost, should the motel be built? Base your decision on an annual worth analysis.

Reference no: EM13182095

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