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Destination Hotels currently owns an older hotel on the best beachfront property on Hilton Head?...

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Finance

Destination Hotels currently owns an older hotel on the best beachfront property on Hilton Head? Island, and it is considering either remodeling the hotel or tearing it down and building a new convention? hotel, but because both hotels would occupy the same physical? location, the company can only choose one, these are mutually exclusive projects. Both of these projects have the same initial outlay of $1,500,000. The first? project, since it is a remodel of an existing? hotel, has an expected life of 10 years and will provide free cash flows of $300,000 at the end of each year for all 10 years. In? addition, this project can be repeated at the end of 10 years at the same cost and with the same set of future cash flows. The proposed new convention hotel has an expected life of 20 years and will produce cash flows of $210,000 per year. The required rate of return on both of these projects is 10 percent. Calculate the NPV of the existing hotel and the new hotel.

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