You purchased land 3 years ago for $75,000 and believe its market value is now $120,000....

You purchased land 3 years ago for $75,000 and believe its market value is now $120,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $205,000, 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 $334,000 each year, while expenses will be a mere $75,000 each year. The initial working capital requirement will be $14,000 which will be recovered in the last year. The tax rate is 28%. Your estimated cost of capital is 15%. What is the net present value of this project?

$139,666.75

$80,929.67

$831,000.00

$186,089.94

$192,149.88

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Expert Solution

The answer is marked in yellow in the attached excel sheet.

jeff jeffy answered 1 year ago

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