Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Net Present Value Method-Annuity for a Service Company
Amenity Hotels Inc. is considering the construction of a new hotel for $64 million. The
expected life of the hotel is 8 years with no residual value. The hotel is expected to earn
revenues of $19 million per year. Total expenses, including depreciation, are expected to be
$14 million per year. Amenity Hotels' management has set a minimum acceptable rate of
return of 10%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in
million. Round your answer to two decimal places.
million
Present Value of an Annuity of $1 at Compound Interest
Periods
8%
10%
0.92593 0.91743 0.90909
0.90090 0.89286 0.88496
1.78326 1.75911
1.73554
1.71252
1.69005 1.66810
2.57710 2.53129
2.48685 2.44371
2.40183 2.36115
3.31213 3.23972
3.16987
3.10245
3.03735 2.97447
3.99271 3.88965
3.79079 3.69590
3.60478
3.51723
3.43308
4.62288 4.48592
4.35526
4.23054
4.11141 3.99755 3.88867
5.20637 5.03295
4.86842 4.71220
4.56376
4.28830
5.74664 5.53482
5.33493 5.14612
4.96764
4.79677
4.63886
5.75902 5.53705
5.32825
5.13166 4.94637
6.24689 5.99525
6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612
1
2
3
4
5
6
7
8
9
10
9%
11%
12%
million
13%
4.42261
14%
0.87719
1.64666
2.32163
2.91371
b. Compute the net present value of the new hotel, using the present value of an annuity of
$1 table above. Round to the nearest million dollars. If required, use the minus sign to
indicate a negative net present value.
Net present value of hotel project: $
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Transcribed Image Text:Net Present Value Method-Annuity for a Service Company Amenity Hotels Inc. is considering the construction of a new hotel for $64 million. The expected life of the hotel is 8 years with no residual value. The hotel is expected to earn revenues of $19 million per year. Total expenses, including depreciation, are expected to be $14 million per year. Amenity Hotels' management has set a minimum acceptable rate of return of 10%. a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places. million Present Value of an Annuity of $1 at Compound Interest Periods 8% 10% 0.92593 0.91743 0.90909 0.90090 0.89286 0.88496 1.78326 1.75911 1.73554 1.71252 1.69005 1.66810 2.57710 2.53129 2.48685 2.44371 2.40183 2.36115 3.31213 3.23972 3.16987 3.10245 3.03735 2.97447 3.99271 3.88965 3.79079 3.69590 3.60478 3.51723 3.43308 4.62288 4.48592 4.35526 4.23054 4.11141 3.99755 3.88867 5.20637 5.03295 4.86842 4.71220 4.56376 4.28830 5.74664 5.53482 5.33493 5.14612 4.96764 4.79677 4.63886 5.75902 5.53705 5.32825 5.13166 4.94637 6.24689 5.99525 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 1 2 3 4 5 6 7 8 9 10 9% 11% 12% million 13% 4.42261 14% 0.87719 1.64666 2.32163 2.91371 b. Compute the net present value of the new hotel, using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value. Net present value of hotel project: $
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