Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 1

Susan Campbell is thinking about going into the motel business near Disney World in Orlando, Florida. The cost to build a motel is $2,200,000. The lot costs $600,000. Furniture and furnishings cost $400,000 and should be recovered in eight years (seven-year MACRS property), while the motel building should be recovered in 39 years (39-year MACRS real property placed in service on January 1st). The land will appreciate at an annual rate of 5% over the project period, but the building will have a zero salvage value after 25 years. When the motel is full (100% capacity), it takes in (receipts) $4,000 per day, 365 days per year. Exclusive of depreciation, the motel has fixed operating expenses of $230,000 per year. The variable operating expenses are $170,000 at 100% capacity, and these vary directly with percent capacity down to zero at 0% capacity. If the interest is 10% compounded annually, at what percent capacity over 25 years must the motel operate in order for Susan to break even (Assume that Susan's tax rate is 31%.)