Description
This case study will have you calculate valuation scenarios. Background and case information is provided in the Case Study Assignment Guide. An Excel template is provided for you to use in completing the valuation calculations. Note that there are multiple tabs on this spreadsheet, each with a different problem.
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HOSP4055: Hospitality Operations Analysis
Week 2 Case Study: Valuation
Assigment Due Date and Time
This assignment is due via the Assignment Link by 11: 59 PM Eastern, on the
due date.
Background
The valuation of a hospitality enterprise is based on two things. Cash flow and
the market capitalization rate.
Cash flow is simply the cash flow the asset produces before Interest,
Depreciation, Amortization, and Income taxes. These items are the result of
the capital structure of the asset – and that structure always changes with new
ownership. The typical “level” of valuation is known as EBITDA or “Earnings
Before Interest, Taxes, Depreciation and Amortization.
The market capitalization rate is based on the return requirements or investors
in the market at the time the buy/sell transaction occurs. Generally, the
capitalization rate increase when risk increases, and decreases when risk
decreases. Individual owners do not control the capitalization rate. It is
function of market forces, and of all investors in the space.
As a reminder, the value of commercial real estate is based on:
Cash Flow(EBITDA)
Capitalization Rate.
Requirements:
1. For each of the 4 investment scenarios on the Excel file, calculate the
required items. You must use Excel formulas in every cell in which
they are required.
2. Submit your completed Excel file using the assignment link.
Grading Criteria
This assignment is worth 50 points and will be graded based on the assignment
rubric.
HOSP 4055 Operations Analysis
Valuation Exercises. S24
An investor group is considering buying an existing operating restaurant.
Calculate the valuation of the restaurant based on the prior 12 months cash flow.
The capitalization rate for projects of this nature and risk profile is currently 12%
Insert your formula in the Yellow highighted cell.
EBITDA
Interest Expense
Tax Expense
Depreciation Expense
Amortization Expense
Net Income
Capitalization Rate
Value
$
$
$
$
$
$
250,000
23,500
26,500
31,500
11,500
157,000
12.0%
HOSP 4055 Operations Analysis
Valuation Exercises.S24
An investor group is considering buying an existing private golf course.
In the opening negotiation, the seller has acknowledged that renovations approaching $450,000 must be made t
The seller has agreed to discount the selling price of the course based on this required renovation, rather than co
Calculate the valuation of the golf course based on the prior 12 months cash flow, discounted by the estimated r
The capitalization rate for projects of this naure and risk profile is currently 7.0%
Insert your formula in the Yellow highighted cell.
EBITDA
Interest Expense
Tax Expense
Depreciation Expense
Amortization Expense
Net Income
Capitalization Rate
Required Renovation
Value
$
$
$
$
$
$
225,000
16,750
14,500
6,750
33,800
153,200
renovation, rather than completing the renovations prior to sale.
HOSP 4055 Operations Analysis
Valuation Exercises. S24
You are considering purchasing a small bed and breakfast.
You have $525,000 you are willing to invest, and need to have a 8.0 % annual return in order to justify investing.
What is the annual cash flow from a bed and breakfast you would need to invest?
Max Investment
Capitalization Rate
Required Annual Cash flow
turn in order to justify investing.
HOSP 4055 Operations Analysis
Valuation Exercises. S24
You have owned an event venue for the past 10 years, but are looking to retire at the end of next year.
Your personal financial planner has indicated that you need to receive at least $1,700,000 from the sale in order
Last year, the venue had cash flow of $100,000
The capitalization rate for venues of this type in this market has been steady at 7%.
Calculate the current value, based on last years cash flow.
Calculate the required increase in cash flow required next year in order to sell the venue at the financial planner
Cash Flow Prior Year
Capitalization Rate
Current Value
Required Valuation
Capitalization Rate
Required Cash Flow
Required Increase in Cash flow
#DIV/0!
700,000 from the sale in order to comfortably retire.
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