# Changes in net present value

In a long-term decision model for project feasibility, what impact on a developer-owner's net present value would occur for each of the following changes in the model's assumptions?

1. Decrease in the net present value.

2. Increase in the net present value.

3. No change in the net present value.

Treat each item below independent of all other items and place the correct number (1-3) in the space provided. Each change has only one correct answer.

_____ a. Decrease projected average room rates

_____ b. Increase the equity hurdle rate

_____ c. Lower projected energy expenses

_____ d. Decrease mortgage principal amount provided by the lender

_____ e. Lower the interest rate charged by the lender

_____ f. Increase the amortization period of the mortgage

_____ g. Decrease the capitalization rate used to estimate the reversion value

_____ h. Increase the multiple used to estimate the sale price of the hotel

_____ i. Decrease the hotel's project cost

_____ j. Increase the reserve for replacement

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#### Solution Preview

In a long-term decision model for project feasibility, what impact on a developer-owner's net present value would occur for each of the following changes in the model's assumptions?

1. Decrease in the net present value.

2. Increase in the net present value.

3. No change in the net present value.

Treat each item below independent of all other items and place the correct number (1-3) in the space provided. Each change has only one correct answer.

_1___ a. Decrease projected average room rates

Since the revenue decreases (lower projected room rates) after tax cash flow (ATCF) will decrease. Hence there is a decrease in net present value (NPV)

1_____ b. Increase the equity hurdle rate

Since the ATCF is ...

#### Solution Summary

The solution answers questions on the impact on net present value due to changes in model's assumptions.