Your investment horizon is 5 years.

A hotel is projected to have $ 55 million in total revenues during year 1.

Total expenses are projected to be $ 40 million in year 1.

3% of the total revenue is allocated as capital reserves in every year.

The annual growth rates in total revenues will be:

Year2 = 2%,

Year3 = 3%,

Year4 = 4%,

Year5 = 3%

The annual growth rate in total expenses will be:

Year2 = 4%,

Year3 = 7%,

Year4 = 4%,

Year5 = 3%)

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.

Question 1: What is the estimated hotel value today?

a) $ 154,961,520

b) $ 224,901,389

c) $ 162,515,008

d) $ 48,477,484

Question 2: What is your expected IRR if you invest $ 150 million in this hotel today?

a) 11.02%

b) -16.96%

c) 9.83%

d) -23.89%

Question 3: Consider your WACC to be 10%. What is your expected NPV if you invest $ 150 million in this hotel today?

a) -$ 1,002,273

b) $ 1,002,273

c) -$ 911,158

d) $ 4,961,520