Course Project: Produce an Estimate of Value
Instructions:
The questions that follow pertain to the economic study and valuation report for the Sample Inn. To answer the questions, open the report and the three Excel programs for the Sample Inn. Use the document and the Hotel Valuation Software to answer each question. With each answer, include a description of how you performed the necessary calculations and the conclusions you have drawn from the calculation.
Note: Each question is independent of the others. After answering a question, you should reset the spreadsheets to their original settings by closing them without saving changes and then opening them again (or by saving the changes with a different file name and then reopening the original files).
To submit this assignment, please refer to the instructions in the course.
Questions
1. Consider what happens to the market valuation component if we consider changes in the debt capital market. The Loan-to-Value ratio was originally set at 70%, with a 5.5% interest rate amortized over 25 years. Now, assume the Sample Inn can secure a mortgage with a Loan-to-Value ratio of only 65%, with a 5.75% interest rate amortized over 20 years. Accounting for these changes, what does this do to the market valuation for the Sample Inn? What conclusions can you draw about the relationship between the debt capital market and hotel valuations?
2. In the text of the report (p. 93), the appraiser notes that franchise fees should total of 10%; 6% for the royalty and 4% for the advertising assessment. What happens to the overall cash flow and to the property value if the franchise fees total 8%, 5% for the royalty and 3% for the advertising assessment? What conclusions can you draw from this exercise?
3. Look at the Additions to Supply sheet of the RNAADR program. Notice that the Assumed Compound Supply Growth in cell D15 is set to 0%. Thus, long-term supply is not expected to grow in the market. What is the effect of this on the Sample Inn’s projected occupancy?
Now change the Assumed Compound Supply Growth to 0.42%. What does this change do to the Sample Inn’s projected occupancy and to the market projected occupancy? Given these changes, how would you characterize the relationship between the rate of supply growth and occupancy projections?
4. Finally, consider the assumptions that framed the analysis. Reviewing this report, you decide the appraiser has made an error. The Homewood Suites Stratford, a 135-room property, has been characterized as among the secondary competition. You believe that it should instead be considered among the Sample Inn’s primary competition. Remove the Homewood Suites from the secondary competition and add it to the primary competition. What effect does this have on the overall analysis? You should pay particular attention to the Demand Base Year sheet, analyzing the changes in overall penetrations, market segment penetrations for the individual hotels, market segment mix for the entire market, and demand.
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Produce a Value Estimate as part of your course project.
Instructions:
The following questions are about the Sample Inn’s economic study and valuation report. Open the report as well as the three Excel programs for the Sample Inn to answer the questions. Answer each question using the document and the Hotel Valuation Software. Include a description of how you completed the necessary calculations and the conclusions you reached as part of each answer.
Please keep in mind that each question stands alone. You should return the spreadsheets to their original settings after answering a question by closing them without making changes and then opening them again (or by saving the changes with a different file name and then reopening the original files).
To turn in this
