ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Net Present Value Method—Annuity

Take a Load Off Hotels is considering the construction of a new hotel for $12,000,000. The expected life of the hotel is 6 years with no residual value. The hotel is expected to earn revenues of $12,400,000 per year. Total expenses, including straight-line depreciation, are expected to be $10,000,000 per year. Take a Load Off's management has set a minimum acceptable rate of return of 12%.

a.  Determine the equal annual net cash flows from operating the hotel.
$fill in the blank 1

b.  Calculate the net present value of the new hotel, using the present value factor of an annuity of $1 table below. If required, round to the nearest dollar. If the net present value is negative, enter the amount using a minus sign.

Present Value of an Annuity of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192

Annual net cash flow $fill in the blank 2
Present value of annual hotel project cash flows $fill in the blank 3
Less hotel construction costs fill in the blank 4
Net present value of hotel project $fill in the blank 5
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