What is the owner's required rate of return (KE) for the project? Using the Security Market Line equation from Chapter 4, show your calculations and display this answer with 2 decimal places (i.e. 14.76%).

Financing Parameters

You are to analyze each project using the WACC (Weighted Average Cost of Capital) approach to project evaluation. The managers have determined that the debt used to finance the Hotel will have an interest rate (KDBT) of 7%. In order to estimate the owner's required rate of return, KE, for the projects, management uses the Security Market Line (SML). They estimate that the return on the market portfolio (KM) is 10% and the risk-free rate, (RF) is 3%. The beta of the Hotel is estimated to be 1.8.

Income State ment for the year of 2019-2023 2019 2020 2022 2023 Revenue Room revenue Food and Beverage revenue other income 10,347,750.00 $ 10,894,520.00 11,606,649.60 $ 12,070,915.58 $12,554,959.30 $ 2,069,550.00 $ 2,178,904.00$ 2,321,329.92$2,414,183.12 2,510,991.86 10,000.00 10,300.00 $ 10,609.00 $10,927.27 11,255.09 12,427,300.00 $ 13,083,724.00 13,938,588.52 $ 14,496,025.97 $15,077,206.25 all Revenues Expenses Department Expen Rooms Food and Beverage Undistributed Operating Expenses ses $ 2,276,505.00 $ 2,396,794.40$ 2,553,462.91 $2,655,601.43 2,762,091.05 $1,448,685.00 $1,525,232.80 1,624,930.94 $ 1,689,928.18 $ 1,757,694.30 $ 869,911.00$ 785,023.44 $836,315.31 $869,761.56 904,632.37 min & General Marketing Franchise Fee Energy Expense Property Maintenance Total Expenses Income Before Fixed Charges $5,678,467.00 $ 5,992,514.21 6,406,548.39 6,669,313.27 $ 6,943,517.75 621,365.00 640,005.95 $ 659,206.13 $ 678,982.31 699,351.78 413,910.00 435,780.80 464,265.98 $ 482,836.62 502,198.37 621,365.00 $ 654,186.20 $ 696,929.43 $724,801.30 $753,860.31 497,092.00 654,186.20 696,929.43 $ 724,801.30 753,860.31 $6,748,833.00 $ 7,091,209.79 $ 7,532,040.13 7,826,712.70 $ 8,133,688.50 Fixed Charges Real Estate Taxes Property Insurance Interest Expense Management Fees Depreciation Expense Income before Income Taxes$ 4,790,232.44 $ 5,076,758.83 $ 5,456,204.36 $ 5,694,765.80 Income Taxes Net Income $ 248,546.00 $ 253,516.92 258,587.26 $ 263,759.00$269,034.18 248,546.00 $ 261,674.48 278,771.77$ 289,920.52 301,544.12 161,927.30 161,927.30 161,927.30 $ 161,927.30 161,927.30 $ 170,354.01 $ 179,775.43 192,196.45 $ 200,079.40$ 208,305.53 58,861.25 $ 58,861.25 $ 58,861.25 $ 58,861.25 58,861.25 5,943,845.36 $ 958,046.49 $ 1,015,351.77 $ 1,091,240.87 $ 1,138,953.16 $ 1,188,769.07 $3,832,185.95 $ 4,061,407.07 $ 4,364,963.49 4,555,812.64 $ 4,755,076.29