A) 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 $740,000; Value Lodges estimates furnishings for the motel will cost an additional $380,000 and will require replacement every 5 years. Annual operating and maintenance costs for the motel are estimated to be $200,000. The average rental rate for a unit is anticipated to be $35/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.
Assuming average daily occupancy percentages of 50%, 60%, 70%, and 80% for years 1 through 4, respectively, and 90% for the 5th through 15th years, a MARR of 12%/year, 365 operating days/year, and ignoring the cost of land, should the motel be built? Calculate the annual worth.
B) Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation that is either 1 inch thick or 2 inches thick on its steam pipes. The heat loss from the pipes without insulation is expected to cost $0.70 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 89% of the loss and will cost $0.35 per foot. A 2-inch thick insulated covering will eliminate 92% of the lost and will cost $0.85 per foot. PCCC Physical Plant Services estimates that there are 190,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 10%/year return to justify capital expenditures. The insulation has a life expectancy of 10 years.
What is the annual worth of having no insulation? $
What is the annual worth of having 1-inch insulation? $
What is the annual worth of having 2-inch insulation? $