Question

Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $18 million. Kim expects the hotel will produce positive cash flows of $2.88 million a year at the end of each of the next 20 years. The project's cost of capital is 13%.

1. What is the project's net present value? Negative value, if any, should be indicated by a minus sign. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $     million

Answer 1

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$18 million. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the third cash flow cash flow, press the NPV button and enter the cost of capital of 13%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value of cash flows is $2.23 million.

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