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?
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?
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