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In: Accounting

1. You decide to purchase a van to transport your hotel guests to and from the...

1. You decide to purchase a van to transport your hotel guests to and from the airport. This is a new service you are adding to your hotel because you have noticed from your STR reports that your competitors are having better occupancy percentages and slightly better ADRs. And after some research, you do have a very comparable product but your current guests have also put in their comment cards that they wish you would provide airport transportation. The cost of the van with the upgrades totals $75,000. You are not charging your guests anything but you have estimated that this new service, you should have an increase in your annual cash flow of $28,000 for the next 5 years. What is the IRR of this van?

Solutions

Expert Solution

computation of IRR
year particulars Amount(in $)
0 initial outflow -75000
1 Revenue (increase incash flow) 28000
2 Revenue (increase incash flow) 28000
3 Revenue (increase incash flow) 28000
4 Revenue (increase incash flow) 28000
5 Revenue (increase incash flow) 28000
IRR for van 25%
verification
year particulars cash flow Discount factor @25% present value of discounted cash flows
a b c d=(1/1.25)^a e=c*d
0 initial outflow -75000 1.000 -75000
1 Revenue (increase incash flow) 28000 0.800 22400
2 Revenue (increase incash flow) 28000 0.640 17920
3 Revenue (increase incash flow) 28000 0.512 14336
4 Revenue (increase incash flow) 28000 0.410 11468.8
5 Revenue (increase incash flow) 28000 0.317 8875.16
0

working note for eference

ekkarill92 answered 2 years ago
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