In: Finance
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?