Question
The Balcones Hotel Company is looking to acquire a 100-room independent hotel in need of renovation and convert it to a national brand. The hotel
The Balcones Hotel Company is looking to acquire a 100-room independent hotel in need of renovation and convert it to a national brand. The hotel can be acquired for $3 million and requires another $2 million in renovation and conversion costs. Currently the hotel is breaking even, but Balcones believes it will do well as a national brand. Estimated cash flows are: Year 1 = $250,000, Year 2 = $500,000, Year 3 = $750,000. After Year 3, Balcones plans on selling the property. Projected market cap rate is 10% and Balcones weighted cost of capital is 12%.
What will be the sales price for the hotel and present value of the future cash flow? Find the pair with right values.
| Sale Price = $7,500,000 Present Value of Future Cash Flow = $6,838,700 | ||
| Sale Price = $7,500,000 Present Value of Future Cash Flow = $6,494,175 | ||
| Sale Price = $6,250,000 Present Value of Future Cash Flow = $6,198,225 | ||
| Sale Price = $6,250,000 Present Value of Future Cash Flow = $6,494,175 |
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