Phuket Beach Hotel

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Case 10:Phuket Beach Hotel VALUING MUTUALLY EXCLUSIVE CAPITAL PROJECTS Case Overview Planet Karaoke Pub Project Lives Monthly rental (5% increment for 3rd and 4th year) 4 years 170, 000 (THB) 770, 000 to 1, 000, 000 (THB) 55, 000 (THB) Up front renovation cost (Depreciated over the life of project - straight line method with zero salvage value) Overhead expenses Repair and maintenance cost 10, 000 (THB) / year Case Overview Beach Karaoke Pub Project Lives Up front investment (Equaled depreciation) 6 years 800, 000 to 1,200 000 (THB) 900, 000 (THB) 4, 672, 000 (THB) Other investment (Equipment and chairs) (Depreciated over the life of project - straight line method with zero salvage value) Estimated…show more content…
WACC is the minimum rate of return expected by investors & long term creditors. WACC =( Proportion Cost of Proportion Cost of * )+( * * (1-Tax) ) of Equity Equity of Debt Debt 75% 9% * 12% )+( 25% * 10% * (1-0.30) ) =( = + 1.75% = 10.75% Question 2  Rank the projects using various measures of investment attractiveness. Do all the measures rank the projects identically? Why or why not? Which criterion is the best? Method 1 &2: Discounted & Conventional Payback Period Payback Period = Net Investment / Annual Returns  Initial Investment = 1,700,000.00 Discounted Year 1 2 3 4 5 6 Cash InFlow (THB) Balance (THB) 598,970.74 1,101,029.26 592,405.24 508,624.02 558,615.89 0.00 527,129.08 0.00 520,260.94 0.00 512,694.95 0.00 Total Years 1 1 0.910507613 0 0 0 Payback Period: 2 years and 11months Conventional Year 1 2 3 4 5 6 Cash InFlow (THB) Balance (THB) 663,312.00 1,036,688.00 726,877.60 758,988.98 792,675.30 867,101.57 945,931.65 309,810.40 0.00 0.00 0.00 0.00 Total Years 1 1 0.408188272

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