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Question 5 On the basis of the data provided at question 3, what is your expected NPV if you invest $ 150 mi in this hotel today? Consider your WACC to be 10%. O a. -$1,002,273 O b. $1,002,273 O c. $4,961,520 O d. -$911,158

Question 5 On the basis of the data provided at question 3, what is your expected NPV if you invest $ 150 mi in this hotel today? Consider your WACC to be 10%. O a. -$1,002,273 O b. $1,002,273 O c. $4,961,520 O d. -$911,158

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter2: Using Financial Statements And Budgets
Section: Chapter Questions
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Please only answer practice question 5. 

Question 5 On the basis of the data provided at question 3, what is your expected NPV if you invest $ 150 mi in this hotel today? Consider your WACC to be 10%. O a. -$ 1,002,273 O b. $1,002,273 O. $4,961,520 O d. -$ 911,158
Transcribed Image Text:Question 5 On the basis of the data provided at question 3, what is your expected NPV if you invest $ 150 mi in this hotel today? Consider your WACC to be 10%. O a. -$ 1,002,273 O b. $1,002,273 O. $4,961,520 O d. -$ 911,158
Question The following situation will be used in questions 3, 4 and 5. 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%(after all adjustments). Going out cap rate is 7,5% (after all adjustments). Cost of sales is usually 3%. Assume no additional costs (brokerage etc.) at the time of the purchase. Your investment horizon is 5 years. What is the estimated hotel value today? O a $ 48,477,484 O b. $ 154,961,520 O. $ 162,515,008 O d. $ 224,901,389
Transcribed Image Text:Question The following situation will be used in questions 3, 4 and 5. 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%(after all adjustments). Going out cap rate is 7,5% (after all adjustments). Cost of sales is usually 3%. Assume no additional costs (brokerage etc.) at the time of the purchase. Your investment horizon is 5 years. What is the estimated hotel value today? O a $ 48,477,484 O b. $ 154,961,520 O. $ 162,515,008 O d. $ 224,901,389
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