Question

Problem 26-01 Investment Timing Option: Decision-Tree Analysis Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $24 million, Kim expects the hotel will produce positive cash flows of $3.6 million a year at the end of each of the next 20 years. The project's cost of capital is 12%. a. What is the project's net present value? A negative value should be entered with a negative sign. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. million

Answer 1

H328 fax =SUM(H307:H327) Year s Cashflows(in millions) Pv@12% PVCF (24.00) 1 $ 3.60 0.892857143 $ 3.60 0.797193878 $ 3.60 0.711780248 $ 3.60 0.635518078 $ 3.60 0.567426856 $ 3.60 0.506631121 $ 3.60 0.452349215 $ 3.60 0.403883228 $ 3.60 0.360610025 $ 3.60 0.321973237 $ 3.60 0.287476104 $ 3.60 0.256675093 $ 3.60 0.22917419 $ 3.60 0.204619813 $ 3.60 0.182696261 $ 3.60 0.163121662 $ 3.60 0.145644341 $ 3.60 0.13003959 $ 3.60 0.116106777 $ $ 3.60 0.103666765 $ NPV (24.00) 3.21 2.87 2.56 2.29 2.04 1.82 1.63 1.45 1.30 1.16 1.03 0.92 0.83 0.74 0.66 0.59 0.52 0.47 0.42 0.37 2.89 Millions s

Function Library Derihed Names Formula Auditing Calculation H328 - f SUM(H307:H327) C Year Cashflows(in millions) Pv@12% =G307/1.12 =G308/1.12 =G309/1.12 =G310/1.12 =G311/1.12 =G312/1.12 =G313/1.12 =G314/1.12 =G315/1.12 =G316/1.12 =G317/1.12 =G318/1.12 =G319/1.12 =G320/1.12 =G321/1.12 =G322/1.12 =G323/1.12 =G324/1.12 =G325/1.12 =G326/1.12 PVCF =F307*G307 =F308*G308 =F309*G309 =F310*G310 =F311*G311 =F312*G312 =F313*G313 =F314*G314 =F315*G315 =F316*G316 =F317*G317 =F318*G318 =F319*G319 =F320*G320 =F321*G321 =F322*G322 =F323*G323 =F324*G324 =F325*6325 =F326*G326 =F327*G327 =SUM(H307:H327) NPV Millions