Due date: 2nd Jan CIVL 394 FINAL PROJECT EVALUATION OF PROJECT IMPROVEMENTS FOR SELANGOR HOTEL PROJECT...

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Due date: 2nd Jan CIVL 394 FINAL PROJECT EVALUATION OF PROJECT IMPROVEMENTS FOR SELANGOR HOTEL PROJECT The New Year eve parties for 2011 had been the best ever in Malaysia. The Hotel Industry was booming. The campaign for the recently concluded "Visit Malaysia" year and the imaginative steps taken by the government and the private sector were paying off rich dividends. The aura of the exotic east blended with the modern amenities to attract tourists from around the world. The management of the Selangor hotel chain was excited about the new possibilities of business. Ms. Rohana Omar had recently completed graduate studies in hotel management and had taken over as CEO of the chain. She was now considering a major expansion plan for Hotel KL - the chain's flagship hotel established in 1997. Although a busy and profitable hotel serving the middle class local traveler and the budget conscious young tourist from the West, Hotel KL was ill-equipped to capitalize on the big spenders now being drawn to Kuala Lumpur. Ms. Omar had ambitious plans - a swimming pool, a modernized kitchen, a shopping arcade to sell Malay handicrafts and art objects, a fancy restaurant serving traditional local fare, a health club, an addition of 50 luxury suites, and a complete refurbishing of the existing 102 rooms. But her training had also taught her to respect the value of quantitative analysis to determine the desirability of the expansion proposal before making any commitments. A valuation of the assets and liabilities of the hotel was done in December 2010. The existing hotel building was valued at $200,000 in year 2010 (including the kitchen and other equipment). The land on which the hotel stands now worth $600,000 and it is estimated the price will not change for next 10 years. The company had taken a long term loan of $400,000 for the purchase of land and construction of the original building back in 1997. An amount of $140,000 is still outstanding from the loan and should be repaid according to equal installment of loan principle for 7 years starting year 2011 and 5% fixed interest rate on loan balance of each year. This repayment will be made irrespective of whether the hotel was kept and operated as such, refurbished or sold. It is estimated that if this facility is continued in operation until 2017, the hotel building and other fixed assets (excluding land) could then be sold for $110,000. Operational plan I shows the data for 2011-2017 if no refurbishing or expansion is undertaken. Operational Plan I of Hotel KL (2011-2017) Average Tariff: $25/day Average Occupancy: 95% All the values are in $ Thousands (unless otherwise indicated) Restaurant Sales Cost of Hotel Supplies Cost of Restaurant Raw Mat. Cost of Entertainment Utilities Wage Bills Skilled Unskilled Advertising Misc. Expenses Year 11 12 13 14 15 16 17 5 400 410 422 430 440 455 470 48 50 51 52 53 First 3 digits of your student number and 2% increase each year 55 56 6 67 7 7 8 45 47 50 51 52 19 57 51 45 2824 22 28 29 31 58 60 62 64 52 54 55 56 57 46 47 49 50 1423 * 8 53 54 32 34 65 68 58 51 52 Hint 1: The value of the land and building and equipment in 2010 should be considered as initial cost therefore year 2010 is our base year. Hint 2: For the cost of raw material for restaurant in existing case every students have to use first 3 digit of their student number for year 2011 and increase it by 2% for each year to the end of operation period. Investment Plan for Expansion: Right behind Hotel KL was a plot of government land that was up for sale and Ms Omar planned to buy it. Some additional expenditure, however, would be required to develop the land and make it suitable for construction. The investment plan for the expansion/renovation is as follows:- In $ Thousands Cost of Additional Land Cost of Developing Land Cost of Additional Building: Swimming Pool etc. a. Labor b. Material Cost of Equipment: a. Traded (Kitchen Equip.) b. Non-traded Cost of Renovation of Existing Bldg 2 2011 2012 90 80 10 90 250 12 10 10 30 45 52 52 Note that the total value of the land for existing and additional will not change for next 10 years. Also the residual value of the buildings and equipment of the expanded and refurbished hotel in 2018 is expected to be $500,000. Since developing and refurbishing of existing hotel will take one year, therefore average tariff, occupancy and total number of hotel room will start changing from year 2012 onward and it will remain the same as existing case for year 2011.The expanded hotel was not expected to immediately have the kind of high occupancy rates enjoyed by the existing hotel. However, the tariff would be higher and occupancy would steadily improve. The Operational Plan II for the expanded hotel is as given below: Operational Plan II for the Expanded Hotel Average tariff: $40/day (from 2012) All the values are In $ Thousands (unless otherwise indicated) Year 11 12 13 14 15 16 17 Average Occupancy Restaurant Sales Cost of Hotel Supplies Cost of Restaurant Raw Mat. 95% 50% 60% 70% 75% 85% 90% 400 520 632 742 855 875 900 80 125 130 136 155 180 48 Last 3 digits of your student number with 5% increase each year Cost of Entertainment Utilities Wage Bills Skilled Unskilled Advertising Misc. Expenses 6 25 25 26 26 45 90 95 97 220 28 28 90 93 97 9555 19 47 48 49 51 52 54 57 148 140 142 149 155 160 51 94 104 105 116 117 125 45 86 87 89 90 91 92 Hint 1: the value of the land and building and equipment in 2010 should be considered as initial cost therefore year 2010 is our base year. Hint 2: for the cost of raw material for restaurant in expanded case every students have to use last 3 digit of their student number for year 2011 and increase it by 5% for each year to the end of operation period. Assignment: Using all aforementioned data in the case: a. b. Prepare the Cash Flow for the existing hotel for the period 2010-2018 and calculate total present worth based on 10% discount rate of the project in Excel spreadsheet. Prepare the Cash Flow for the expanded hotel as proposed for the period 2010-2018 and calculate total present worth based on 10% discount rate in Excel spread sheet. C. compare both the cash flows and prepare a report to suggest best alternative. Due date: 2nd Jan CIVL 394 FINAL PROJECT EVALUATION OF PROJECT IMPROVEMENTS FOR SELANGOR HOTEL PROJECT The New Year eve parties for 2011 had been the best ever in Malaysia. The Hotel Industry was booming. The campaign for the recently concluded "Visit Malaysia" year and the imaginative steps taken by the government and the private sector were paying off rich dividends. The aura of the exotic east blended with the modern amenities to attract tourists from around the world. The management of the Selangor hotel chain was excited about the new possibilities of business. Ms. Rohana Omar had recently completed graduate studies in hotel management and had taken over as CEO of the chain. She was now considering a major expansion plan for Hotel KL - the chain's flagship hotel established in 1997. Although a busy and profitable hotel serving the middle class local traveler and the budget conscious young tourist from the West, Hotel KL was ill-equipped to capitalize on the big spenders now being drawn to Kuala Lumpur. Ms. Omar had ambitious plans - a swimming pool, a modernized kitchen, a shopping arcade to sell Malay handicrafts and art objects, a fancy restaurant serving traditional local fare, a health club, an addition of 50 luxury suites, and a complete refurbishing of the existing 102 rooms. But her training had also taught her to respect the value of quantitative analysis to determine the desirability of the expansion proposal before making any commitments. A valuation of the assets and liabilities of the hotel was done in December 2010. The existing hotel building was valued at $200,000 in year 2010 (including the kitchen and other equipment). The land on which the hotel stands now worth $600,000 and it is estimated the price will not change for next 10 years. The company had taken a long term loan of $400,000 for the purchase of land and construction of the original building back in 1997. An amount of $140,000 is still outstanding from the loan and should be repaid according to equal installment of loan principle for 7 years starting year 2011 and 5% fixed interest rate on loan balance of each year. This repayment will be made irrespective of whether the hotel was kept and operated as such, refurbished or sold. It is estimated that if this facility is continued in operation until 2017, the hotel building and other fixed assets (excluding land) could then be sold for $110,000. Operational plan I shows the data for 2011-2017 if no refurbishing or expansion is undertaken. Operational Plan I of Hotel KL (2011-2017) Average Tariff: $25/day Average Occupancy: 95% All the values are in $ Thousands (unless otherwise indicated) Restaurant Sales Cost of Hotel Supplies Cost of Restaurant Raw Mat. Cost of Entertainment Utilities Wage Bills Skilled Unskilled Advertising Misc. Expenses Year 11 12 13 14 15 16 17 5 400 410 422 430 440 455 470 48 50 51 52 53 First 3 digits of your student number and 2% increase each year 55 56 6 67 7 7 8 45 47 50 51 52 19 57 51 45 2824 22 28 29 31 58 60 62 64 52 54 55 56 57 46 47 49 50 1423 * 8 53 54 32 34 65 68 58 51 52 Hint 1: The value of the land and building and equipment in 2010 should be considered as initial cost therefore year 2010 is our base year. Hint 2: For the cost of raw material for restaurant in existing case every students have to use first 3 digit of their student number for year 2011 and increase it by 2% for each year to the end of operation period. Investment Plan for Expansion: Right behind Hotel KL was a plot of government land that was up for sale and Ms Omar planned to buy it. Some additional expenditure, however, would be required to develop the land and make it suitable for construction. The investment plan for the expansion/renovation is as follows:- In $ Thousands Cost of Additional Land Cost of Developing Land Cost of Additional Building: Swimming Pool etc. a. Labor b. Material Cost of Equipment: a. Traded (Kitchen Equip.) b. Non-traded Cost of Renovation of Existing Bldg 2 2011 2012 90 80 10 90 250 12 10 10 30 45 52 52 Note that the total value of the land for existing and additional will not change for next 10 years. Also the residual value of the buildings and equipment of the expanded and refurbished hotel in 2018 is expected to be $500,000. Since developing and refurbishing of existing hotel will take one year, therefore average tariff, occupancy and total number of hotel room will start changing from year 2012 onward and it will remain the same as existing case for year 2011.The expanded hotel was not expected to immediately have the kind of high occupancy rates enjoyed by the existing hotel. However, the tariff would be higher and occupancy would steadily improve. The Operational Plan II for the expanded hotel is as given below: Operational Plan II for the Expanded Hotel Average tariff: $40/day (from 2012) All the values are In $ Thousands (unless otherwise indicated) Year 11 12 13 14 15 16 17 Average Occupancy Restaurant Sales Cost of Hotel Supplies Cost of Restaurant Raw Mat. 95% 50% 60% 70% 75% 85% 90% 400 520 632 742 855 875 900 80 125 130 136 155 180 48 Last 3 digits of your student number with 5% increase each year Cost of Entertainment Utilities Wage Bills Skilled Unskilled Advertising Misc. Expenses 6 25 25 26 26 45 90 95 97 220 28 28 90 93 97 9555 19 47 48 49 51 52 54 57 148 140 142 149 155 160 51 94 104 105 116 117 125 45 86 87 89 90 91 92 Hint 1: the value of the land and building and equipment in 2010 should be considered as initial cost therefore year 2010 is our base year. Hint 2: for the cost of raw material for restaurant in expanded case every students have to use last 3 digit of their student number for year 2011 and increase it by 5% for each year to the end of operation period. Assignment: Using all aforementioned data in the case: a. b. Prepare the Cash Flow for the existing hotel for the period 2010-2018 and calculate total present worth based on 10% discount rate of the project in Excel spreadsheet. Prepare the Cash Flow for the expanded hotel as proposed for the period 2010-2018 and calculate total present worth based on 10% discount rate in Excel spread sheet. C. compare both the cash flows and prepare a report to suggest best alternative.

Answer rating: 100% (QA)

Hotel Expansion Project Evaluation This report analyzes the potential expansion of Hotel KL by evaluating the cash flows of both the existing hotel an... View the full answer