You purchased land 3 years ago for $50,000 and believe its market value is now $60,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $75,000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $140,000 each year, while expenses will be a mere $30,000 each year. The initial working capital requirement will be $7,000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 11%. What is the net present value of this project? OA $63,993 OB.$59,226 OC. $30,495 OD. $10,729

You purchased land 3 years ago for $50,000 and believe its market value is now $60,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $75,000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $140,000 each year, while expenses will be a mere $30,000 each year. The initial working capital requirement will be $7,000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 11%. What is the net present value of this project? OA $63,993 OB.$59,226 OC. $30,495 OD. $10,729

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 8P

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You purchased land 3 years ago for $55000 and believe its market value is now $80000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $145000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $220000 each year, while expenses will be a mere $22000 each year. The initial working capital requirement will be $10000 which will be recovered in the last year. The tax rate is 35%. Your estimated cost of capital is 10%. What is the net present value of this project?Answer $134,640.25OR$29,935.11. pls solve stepwise and correct only or else skip pls.
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