Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Textbook Question
Chapter 12, Problem 9E
Amenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million per year. Total expenses, including
- a. Determine the equal annual net cash flows from operating the hotel.
- b. Compute the net present value of the new hotel, using the present value of an annuity table found in Appendix A. Round to the nearest million dollars.
- c. Does your analysis support construction of the new hotel? Explain.
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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
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8%
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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 $63 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 $13 million per year. Amenity Hotels' management has set a minimum
acceptable rate of return of 11%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places.
13.875 x million
Present Value of an Annuity of $1 at Compound Interest
Periods
8%
9%
10%
11%
12%
13%
14%
1.
0.92593
0.91743
0.90909
0.90090
0.89286
0.88496
0.87719
2
1.78326
1.75911
1.73554
1.71252
1.69005
1.66810
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2.57710
2.53129
2.48685
2.44371
2.40183
2.36115
2.32163
4
3.31213
3.23972
3.16987
3.10245
3.03735
2.97447
2.91371
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3.99271
3.88965
3.79079
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3.60478
3.51723
3.43308
4.62288
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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 $80 million. The expected life of the hotel is 5 years with no residual value. The hotel is expected to earn revenues of $21 million per year. Total expenses, including depreciation, are expected to be $16 million per year. Amenity Hotels’ management has set a minimum acceptable rate of return of 8%.
a. Determine the equal annual net cash flows from operating the hotel. Enter your answer in million. Round your answer to two decimal places.$fill in the blank 1 million
Present Value of an Annuity of $1 at Compound Interest
Periods
8%
9%
10%
11%
12%
13%
14%
1
0.92593
0.91743
0.90909
0.90090
0.89286
0.88496
0.87719
2
1.78326
1.75911
1.73554
1.71252
1.69005
1.66810
1.64666
3
2.57710
2.53129
2.48685
2.44371
2.40183
2.36115
2.32163
4
3.31213
3.23972
3.16987
3.10245
3.03735
2.97447
2.91371
5
3.99271
3.88965
3.79079
3.69590
3.60478
3.51723
3.43308
6…
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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