Assume that you currently own a 50-room 2-star hotel with 10 years remaining on the lease. Estimate costs, payments made by guests, and the annual discount rate. (Note: Do not be too specific on individual costs and benefits. General categories will do.) We have not spent a lot of time dealing with finding discount rates, and so you do not need to be too detailed in your estimate (Note: the that the discount rate in the context of this course is different from that in the Federal Reserve context). Make sure to think about the cash flows being significantly lower in Year 1 (and maybe beyond) due to COVID-19. Calculate the Net Present Value of the hotel for the remainder of the lease. Provide an answer in about 200 words, and explain all calculations thoroughly. If you go well over the 200-word limit, GauchoSpace may not be able to accept your submission.
An “A” level submission will thoroughly explain assumptions and calculations well, will be nearly free of grammar, punctuation, and word choice errors, and will be well thought out and cohesive in the arguments provided. Students will receive lower scores if these directions are not adequately followed. You should provide some evidence for the numbers you use in your calculations.
Sample Solution
