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Calculate the net present value of the new hotel

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Question - Net Present Value Method-Annuity

Keystone Hotels is considering the construction of a new hotel for $120 million. The expected life of the hotel is 30 years, with no residual value. The hotel is expected to earn revenues of $47 million per year. Total expenses, including depreciation, are expected to be $32 million per year. Keystone management has set a minimum acceptable rate of return of 14%. Assume straight-line depreciation.

a. Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars.

b. Calculate the net present value of the new hotel. Use 7.003 for the present value of an annuityof $1 at 14% for 30 periods. Round to the nearest million dollars.

c. Does your analysis support construction of the new hotel?

Reference no: EM132107471

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