Business, 03.06.2020 03:59 martinbricein10
Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost to build the motel is estimated at $6,800,000; Value Lodges estimates furnishings for the motel will cost an additional $200,000 and will require replacement every 5 years.
Annual operating and maintenance costs for the motel are estimated to be $540,000. The average rental rate for a unit is anticipated to be $25/day. Value Lodges expects the motel to have a life of 15 years and a salvage value of $900,000 at the end of 15 years. This estimated salvage value assumes that the furnishings are not new. Furnishings have no salvage value at the end of each 5-year replacement interval.
Required:
1. Assuming average daily occupancy percentages of 50 percent, 60 percent, 70 percent, and 80 percent for years 1 through 4, respectively, and 90 percent for the fifth through fifteenth years, a MARR of 12 percent/year, 365 operating days/year, and ignoring the cost of land, should the motel be built? Base your decision on an internal rate of return analysis.
Answers: 3
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Value Lodges owns an economy motel chain and is considering building a new 200-unit motel. The cost...
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