Based on a rate of return analysis

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Reference no: EM131310897

Jaguar lodges is the owner of an economy motel chain. Jaguar lodges is considering a new 200-unit motel. The estimated cost to build the motel is $8,000,000; Jaguar lodges estimates furnishings for the motel will cost an additional $700,000 and will require replacement every 6 years . The estimated annual operating and maintenance cost for the motel are $1,000,000. The anticipated average rental rate for a unit is $40/day . Jaguar lodges expects the motel to have a life of 12 years and a salvage value of $900,000 at the end of 12 years. Furnishings have no salvage value at the end of each 6-year replacement interval. Assume an average daily occupancy percentage of 70% for year 1 and 90 % for year 2 through 12, MARR of 12% per year , 365 operating days/year. Ignore the cost of the land . Based on a rate of return analysis ( show ROR calculations), determine if Jaguar lodges should build the motel. why ?

Reference no: EM131310897

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