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.

Unformatted Attachment Preview

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.

Purchase answer to see full

attachment