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Estimated Hotel Value Assignment | Homework For You

A hotel is projected to have $ 55 mi in total revenues during the following year. Total expenses are projected to be $ 40 mi. 3% of the total revenue is allocated as capital reserves. In the next four years, the annual growth rates in total revenues and total expenses will be (2%, 3%, 4%, 3%) and (4%, 7%, 4%, 3%) respectively. In the following years, revenues and total expenses will stabilize at a constant rate of 2.5%. The market discount rate on such assets is estimated at 9%. Going out cap rate is 7.5%. Cost of sales is usually 3%. Assume no additional costs (brokerage etc.) at the time of the purchase. Your investment horizon is 5 years.Homework For You

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The estimated hotel value is $48,477,484 and the IRR is -23.89%

What is your expected NPV if you invest $ 150 mi in this hotel today? Consider your WACC to be 10%.

a)      -$ 1,002,273

b)      $ 1,002,273

c)       -$ 911,158

d)      $ 4,961,520. Get Finance homework help today

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