What is the net present value of this investment

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Reference no: EM131853639

Caesars Palace Las Vegas made headlines when it undertook a $75 million renovation. In mid-September 2015, the hotel closed its then-named Roman Tower, which was last updated in 2001, and started a major renovation of the 567 rooms housed in that tower. On January 1, 2016, the newly renamed Julius Tower reopened, replacing the Roman Tower. In addition to renovating the existing rooms and suites in the former Roman Tower, 20 guest rooms were added to the Roman Tower.

Assume that the annual fixed operating costs for th Julius Tower will be $2,390,000 and that the variable cost per hotel room night after the renovation is $27. Also assume that costs, twelve years after the renovation, are estimated and $25,000,000. The towers in Caesars Palace Las Vegas are generally renovated once every fifteen years. Assume the renovated tower's room rate is $149 per night, and 91.2% occupacy is expected on average.

What is the net present value (NPV) of this investment? Assume an interest rate of 10%.

Reference no: EM131853639

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