Net Present Value Method—Annuity for a Service Company Welcome Inn Hotels is considering the construction of a new hotel for $81 million. The expected life of the hotel is 7 years with no residual...

Net Present Value Method—Annuity for a Service Company

Welcome Inn Hotels is considering the construction of a new hotel for $81 million. The expected life of the hotel is 7 years with no residual value. The hotel is expected to earn revenues of $22 million per year. Total expenses, including depreciation, are expected to be $16 million per year. Welcome Inn management has set a minimum acceptable rate of return of 9%. Assume straight-line depreciation.

a.Determine the equal annual net cash flows from operating the hotel. Round to the nearest million dollars.
$fill in the blank 1 million

b.Calculate the net present value of the new hotel using the present value of an annuity of $1 table above. Round to the nearest million dollars. If required, use the minus sign to indicate a negative net present value.
Net present value of hotel project: $fill in the blank 2 million

c.Does your analysis support the purchase of the new hotel?
 , because the net present value is  .