Project Option Lease

Project life 4 yrs

Upfront Investment
Renovation / Changes 770000
Depreciation SLM,
Salvage 0
Equipment 0
Tax Rate 30%
Cost of Capital 10.75% 10.75
Repair and maintenance 10000
patronage factor 0.5

Year 0 1 2 3
Net room revenue 13200000 13464000 14137000
Reduction in revenue 1650000 1683000 1767125

Year 0 1 2 3
Rental 2040000 2040000 2142000
Less: Depreciation exp. -192500 -192500 -192500
Repairs -10000 -10000 -10000
Room revenue reduction -1650000 -1683000 -1767125
Additional operating income 187500 154500 172375

Less taxes 56250 46350 51712.5

NOPAT 131250 108150 120662.5

Add: Depreciation 192500 192500 192500

Operating Cashflow -770000 323750 300650 313162.5

PV ₹ 935,016.99
NPV ₹ 165,016.99

disc cash flow -770000 292325.056433409 245117.2 230535.9

Profitability Index (PI) ₹ 1.21

IRR 21%
Equivalent Annuity ₹ 52,905.69
payback 2.46 1 1 0.464934
discounted payback 3.01 1 1 1.00877

EAA CALCULATION
₹ 17,739.33
0.335300946408501

₹ 52,905.69
 Effect of pub on the Hotel sales - 25% of sales are from famili
Patronage Decrease in net room revenue
0.1 0 0
0.1 2.5%
0.2 5.0%
0.3 7.5%
0.4 10.0%
Note this 0.5 12.5%
4 0.6 15.0%
14844000 15140000 15443000 0.7 17.5%
1855500 Why? 0.8 20.0%
0.9 22.5%
4 1 25%
2142000
-192500
-10000
-1855500
84000

25200

58800
192500

251300

THE CORREC T FORMULA FOR EAA

EAA=[(r*NPV)/1-(1+r)^-n]
167038.9
- 25% of sales are from families with small children
n net room revenue
 Project Option Build

Project life 6 yrs

Upfront Investment
Renovation / Changes 800000
Equipment 900000 Again SLM and no salvage value
Tax Rate 30%
Cost of Capital 10.75%
Sales growth rate 5%
Food and Beverages cost 25% of sales
Salary 16% of sales
Other Op. expenses 22% of sales
Repair and maintenance 10000
Capex equals depreciation

patronage factor 0.5

Year 0 1 2
Net room revenue 13200000 13464000
Reduction in revenue 1650000 1683000
Year 0 1 2
Sales 4672000 4905600
less F&B cost -1168000 -1226400
Other op exp. -1027840 -1079232
salary 16% but existing staff will be used
repair and main -10000 -10000
Depreciation -283333 -283333
reduction in room revenue -1650000 -1683000

Additional operating income 532826.666666667 623634.6667

Less taxes 159848 187090.4

NOPAT 372979 436544

Add: Depreciation 283333 283333
Less: Capex -283333 -283333
Operating Cashflow -1700000 372979 436544
Initial Inv -1700000
PV ₹ 2,073,043.31
NPV ₹ 373,043.31

disc cash flow -1700000 336775 394171

Profitability Index (PI) ₹ 1.22

 IRR 17%
Equivalent Annuity ₹ 87,544.58
Payback 3.84 1 1
discounted payback 4.51 1 1

EAA calc
Numerator ₹ 40,102.16
Denominat 0.458076991094783

EA ₹ 87,544.58
 Effect of pub on the Hotel sales - 25% of sales ar
3 4 5 6 Patronage Decrease in net room reve
14137000 14844000 15140000 15443000 0.1 0 0
1767125 1855500 1892500 1930375 0.1 2.5%
3 4 5 6 0.2 5.0%
5150880 5408424 5678845.2 5962787.46
-1287720 -1352106 -1419711.3 -1490696.87
-1133193.6 -1189853.28 -1249345.94 -1311813.24

-10000 -10000 -10000 -10000

-283333 -283333 -283333 -283333
-1767125 -1855500 -1892500 -1930375

669508.0667 717631.3867 823954.6227 936569.0205

200852.42 215289.416 247186.3868 280970.7061

468656 502342 576768 655598

283333 283333 283333 283333
-283333 -283333 -283333 -283333
468656 502342 576768 655598

EAA=[(r*NPV)/1-(1+r)^-n]
423165 453582 520784 591962
 1 0.839709689
2.290012025 0.218133399
Hotel sales - 25% of sales are from families with small children
Decrease in net room revenue

0.3 7.5%
0.4 10.0%
0.5 12.5%
0.6 15.0%
0.7 17.5%
0.8 20.0%
0.9 22.5%
1 25%

NPV)/1-(1+r)^-n]
if time permits