A B C D E F G H K M N 193 SECTION III TRANSACTION ANALYSIS (20 POINTS) 194 195 Question 3 (25 points) 196 Based on the case below please construct the Transaction Sources & Uses and calculate the WACC 197 198 Phatchance Hotel Properties, Inc. Jack Von Crook, a hotel investor, is in the process of purchasing Phatchance Hotel Properties, Inc. ("PHP"). PHP operates two hotels in Miami, Florida with total of 800 rooms. He is anticipated to complete the necessary 199 renovations on these properties by December 31, 2019 and open its doors for business on January 1st, 2020. The estimated total cost of both properties is $340 million, plus additional $50 million for renovations. PHP estimated 2019 EBITDA of $60 million and outstanding debt of $50 million. 200 201 Capital Raising: 202 Jack needs capital to purchase and renovate the two properties as well as refinance its current debt outstanding. 203 Jack will invest $110 million of equiy. He received an approval for the bank loan for 5x 2019 EBITDA and the rest of the financing will be paid in Corporate Bonds. The pricing is as follows: Bank Loan @ 7.0% Fixed Rate, Corporate Bonds @ 10.0% Fixed Rate and the Equity expected return is calculated based on CAPM with risk free rate of 3.0%, beta of 1.9x and equity market return of 13.0%. 204 205 206 Transaction Uses Amount 207 write the whole number (i.e. 200,000,000 for $200 million) 208 209 210B C D E F G H K M 205 206 Transaction Uses Amount 207 write the whole number (i.e. 200,000,000 for $200 million) 208 209 210 211 Total 212 213 TAX RATE = 22.0% Amount Interest Interest WACC 214 Transaction Sources $ million) % Capital Expected /Expected Return Return % After Tax 215 Bank Loan 216 Corporate Bonds 217 Equity 218 Total 219 220 221