risk analysis in capital budgeting
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show in full details using formulas. I have an idea but running into some problems. Please do not copy other solutions from other sites. Looking for customer help with these two problems. Please remember its two problems in two different sheets.
The recently opened Grand Hyatt Wailea Resort and Spa on Maui cost $600 million, about $800,000 per room, to build. Daily operating expenses average $135 a room if occupied and $80 a room if unoccupied (much of the labor of running a hotel is fixed). At an average room rate of $500 a night, a marginal tax rate of 40%, and a cost of capital of 11%, what year-round occupancy rate do the Japanese investors who financed the Grand Hyatt Wailea require to break even in economic terms on their invironment over its estimated 40-year life? What is the likelihood that this invesment will have a positive NPV? Assume that the $450 million expense of building the hotel can be written off straight line over a 30-year period (the other $150 million is for the land which is not depreciable) and that the PV of the hotel’s terminal value will be $200 milion.