Revenues once the motel is operational it will generate

Reference no: EM13390417

The StayaNight discount motel chain is considering a proposal to build a new motel that would have 150 rooms.

Revenues: Once the motel is operational, it will generate revenue of $100 per night per room that is occupied. This price is expected to hold constant over the lifespan of the project.

Operational Costs: Daily operational including labour and materials; costs are $5,000 + $20 per occupied room in year 1, and both will increase 3% annually. Accounts Receivable, Accounts Payable and Inventory can be ignored.

Administrative Expense: Administrative expense is estimated at $350,000 annually with no annual change. Annual Replacement Expense (furniture etc.) is $50,000 in year one and will grow10% per year after that. Marketing is planned at $60,000 annually.

Investment: The motel will cost $1,000,000 to build. Simplify depreciation to be calculated as straight line over 30 years. It will be financed with a 30 year loan at 8% interest compounded annually with annual payments. It will be sold at the end of year 15 for $300,000, at which time the remaining balance on the load will be paid. The land lease cost is $100,000 annually. The corporate minimally attractive rate of return is 15%. Tax rate is 35%.

Reference no: EM13390417

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