Reference no: EM131074755

He spent $20,000 six months ago with a consultant to get a feasibility study done. The consultant recommended that the hotel be 300 rooms, and predicted that the hotel could run a 60% occupancy rate in its first year and have an average daily room rate of $150. (Note/Hint: Remember that the hotel operates 365 days per year) The occupancy would increase by 2 points per year until it reached a maximum of 75%. The average daily room rate would grow at two percentage points over inflation per year forever. Casino revenue is expected to be $1,000,000 in the first year and will grow with inflation. Revenue other than room rate (restaurant, bars, etc.) is expected to be 20% of total room revenue per year. The consultant estimates that the fixed costs (insurance, property taxes etc) excluding depreciation will total $250,000 in the first year. It is expected these costs will increase with inflation in future years. Variable costs including labor should be 60% of total hotel and casino revenue. A liquidator he knows has already promised to pay him 5% of original purchase price for any furniture and equipment he might want to liquidate, regardless of age or condition. What would your group advise your dad: should he do the deal or not? Why? Please be sure to compute both NPV and payback for him, and make recommendations for him. Be sure to show all computations, and list any and all assumptions you needed to make for the analysis.