Question 1 Hotel Inc. is a diversified company whose core business is in the "Lodging" industry, which has an estimated industry asset beta of 0.53. Hotel Inc. also holds a division operating in the Contract Services" industry, providing food to health-care and educational institutions. The divisional manager is pressing for an expansion of the Contract Services division through new investments, and claims that the WACC to be used in the valuation of these investments must be computed based on an asset beta of 0.53. You must advise the CFO of Hotel Inc. on whether the divisional manager's proposal is sound. After unlevering equity betas of companies in the Contract Services industry, you find that the industry asset beta is 1.03. What is your advice to Hotel Inc.'s CFO? Should he follow the proposal of the Contract Services divisional manager? Explain. 18 marks Question 1 Hotel Inc. is a diversified company whose core business is in the "Lodging" industry, which has an estimated industry asset beta of 0.53. Hotel Inc. also holds a division operating in the Contract Services" industry, providing food to health-care and educational institutions. The divisional manager is pressing for an expansion of the Contract Services division through new investments, and claims that the WACC to be used in the valuation of these investments must be computed based on an asset beta of 0.53. You must advise the CFO of Hotel Inc. on whether the divisional manager's proposal is sound. After unlevering equity betas of companies in the Contract Services industry, you find that the industry asset beta is 1.03. What is your advice to Hotel Inc.'s CFO? Should he follow the proposal of the Contract Services divisional manager? Explain. 18 marks