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.

What is your expected NPV if you invest $ 150 million 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