Question

6-58 Hospitality Enterprises is planning to build a new 112 room inn in Martin. The initial cost of land leases and construction is anticipated to be $3.4 million. The annual operating and maintenance costs are expected to average $25,000 for the 20-year life of the inn. Every 4 years the interior of the innr must be painted at a cost of $15,000. The exterior must be painted and refurbished every 5 years at a cost of $60,O00. The carpet and fur- niture must be replaced every 6 years at a cost of $100,000. Every 8 years $80,000 will be spent on paving and striping the parking areas. The inn will have a net demolition cost of $100,000 at the end of its life. If the MARR for Hospitality is 5%, determine the EUAC for the inn. Contributed by Ed Wheeler University of Tennessee at Martin

Answer 1

Initial cost of Inn=$3.4 mn

Annual operating and maintenance cost=$25000/ year

Cost for interior after each 4 years =$15,000

Cost for exterior after each 5 years =$60000

Cost for carpet etc. after each 6 years= $100000

Cost for paving after each 8 years =$80000

Salvage value= $100000

EUAC =Present value of cost/(P/A,5%,20)

Present value of cost=3,400,000+25000(P/A,5%,20)+15000*(P/F,5%,4)+15000*(P/F,5%,8)+15000*(P/F,5%,12)+15000*(P/F,5%,16)+60000*(P/F,5%,5)+60000*(P/F,5%,10)+60000*(P/F,5%,15)+100000*(P/F,5%,6)+100000*(P/F,5%,12)+100000*(P/F,5%,18)+80000*(P/F,5%,8)+80000*(P/F,5%,16)+100000(P/F,5%,20)

=3400000+25000*12.462+15000*0.8227*3.546+60000"0.7835*2.723+100000*0.7462*2.723+80000*0.6768*1.859+100000*0.3769

=4224027.66

EUAC=4224027.6/12.462=338,952.59

Hence Equivalent uniform annual cost =338952.59