The Road Stop is a national hotel chain with a cost of capital of 12.4 percent. This chain is considering opening a high-end resort that is expected to have a cost of capital that is at least 13 percent. The estimated net present value of the resort project is $500 when discounted at 12.4 percent. The best representation of this situation is that the resort project should:

Question

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The estimated net present value of the resort project is positive, indicating that the project has the potential to generate positive returns. However, the cost of capital for the project is higher than the company's cost of capital, which means the project's returns may not cover the cost of capital. Therefore, it would be best for the company to put the project on hold until its cost of capital can be lowered or find ways to increase the returns of the project to meet the cost of capital.

The Road Stop Is a National Hotel Chain with a Cost