What is the estimated market value of the hotel

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Reference no: EM132402817

Accor is considering to buy an economy hotel in Dallas. The prevailing market discount rate for the economy hotel subsegment in Dallas is 10%. The expected NOI for the next 6 years is shown below. The WACC for this project is 8%. Accor is considering a 5-year holding period for this investment. The going-out cap rate is 7.25% for this hotel subsegment.

a. What is the estimated market value of the hotel at the end of year-5 assuming income stabilizes after year 5?

b. Assuming 2% transaction costs at time of sale only, what is the current market value of the hotel if Accor plans to sell it at the end of the 5th year? Do not round off the valuation.

c. Suppose, Accor pays $ 1.5 mi to buy the parking lot. What is the NPV for this project? Do not round off the valuation.

Year-0

Year-1: $100,000

Year-2: $118,000

Year-3: $123,000

Year-4: $126,000

Year-5: $130,000

Year-6:$142,000

Reference no: EM132402817

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