Part 2 - Raising Debt Table D - Investment Project C-renovation of existing hotels - cash flow profile for 1 hotel Year 1 Year 2 Year 3 Year 4 Year 0 -3.0 ($ million) Investment cash flows Increase in hotel operating cash flows Final year value Net renovation cash flows per hotel $0 0.5 0.8 1.0 2.0 -3.0 0.5 0.8 1.0 3.0 Question 6 - Based on the capital structure conceptual framework, should Golden Dragon Hotels consider funding the investment requirement only with debt, equity or a combination of both? Please justify your answer (max 250 words). The CEO and shareholders of Golden Dragon Hotels finally decide to pursue a third option, Project C, which implies the extensive renovation of 3 of the 10 hotels owned by the Company. For each hotel, the renovation project cash flows are shown in table D of the attached Excel. Question 6 Based on the capital structure theoretical framework, should Golden Dragon Hotels consider funding the investment requirement with debt, equity or a combination of both? Please justify your answer (max 250 words). In order to fund Project C, Golden Dragon Hotels engages in discussions with prospective lenders. Two debt funding options emerge as possible for each hotel renovation: Option 1 - Amortizing Loan Funded amount -55% of total capital requirement Period -4 years Interest rate - 7.0% per annum, paid once a year Arrangement fee - 1.0% of total funded amount; to be paid upfront Repayment profile - constant amortization of loan principal Option 2 - Bullet Repayment Loan Funded amount -60% of total capital requirement Period - 4 years Interest rate - 7.5% per annum, paid once a year Repayment profile - full repayment of loan principal at maturity Exit fee (repayment premium) - 0.5% of total funded amount; to be paid at maturity Table E.1 - Debt Option 1 Debt option 1 - amortizing loan financing Funded amount (% of capital requirement) Loan period (nb of years) Annual cash interest rate (in %) Arrangement fee 55.0% 4.0 7.0% 1.0% Year 0 Year 1 Year 2 Year 3 Year 4 Total Table E ($ million) Initial Balance Funded loan amount Repaid loan amount Final Balance Arrangement fee Interest paid in cash Annuity payment Net cash flows IRR Table F.1 - Debt Option 1 Debt option 2 - bullet loan financing Funded amount (% of capital requirement) Loan period (nb of years) Annual cash interest rate (in %) Repayment premium 60.0% 4.0 7.5% 0.5% Year 0 Year 1 Year 2 Year 3 Year 4 Total Table F($ million) Initial Balance Funded loan amount Repaid loan amount Final Balance Interests Repayment premium Annuity payment Net cash flows IRR Part 2 - Raising Debt Table D - Investment Project C-renovation of existing hotels - cash flow profile for 1 hotel Year 1 Year 2 Year 3 Year 4 Year 0 -3.0 ($ million) Investment cash flows Increase in hotel operating cash flows Final year value Net renovation cash flows per hotel $0 0.5 0.8 1.0 2.0 -3.0 0.5 0.8 1.0 3.0 Question 6 - Based on the capital structure conceptual framework, should Golden Dragon Hotels consider funding the investment requirement only with debt, equity or a combination of both? Please justify your answer (max 250 words). The CEO and shareholders of Golden Dragon Hotels finally decide to pursue a third option, Project C, which implies the extensive renovation of 3 of the 10 hotels owned by the Company. For each hotel, the renovation project cash flows are shown in table D of the attached Excel. Question 6 Based on the capital structure theoretical framework, should Golden Dragon Hotels consider funding the investment requirement with debt, equity or a combination of both? Please justify your answer (max 250 words). In order to fund Project C, Golden Dragon Hotels engages in discussions with prospective lenders. Two debt funding options emerge as possible for each hotel renovation: Option 1 - Amortizing Loan Funded amount -55% of total capital requirement Period -4 years Interest rate - 7.0% per annum, paid once a year Arrangement fee - 1.0% of total funded amount; to be paid upfront Repayment profile - constant amortization of loan principal Option 2 - Bullet Repayment Loan Funded amount -60% of total capital requirement Period - 4 years Interest rate - 7.5% per annum, paid once a year Repayment profile - full repayment of loan principal at maturity Exit fee (repayment premium) - 0.5% of total funded amount; to be paid at maturity Table E.1 - Debt Option 1 Debt option 1 - amortizing loan financing Funded amount (% of capital requirement) Loan period (nb of years) Annual cash interest rate (in %) Arrangement fee 55.0% 4.0 7.0% 1.0% Year 0 Year 1 Year 2 Year 3 Year 4 Total Table E ($ million) Initial Balance Funded loan amount Repaid loan amount Final Balance Arrangement fee Interest paid in cash Annuity payment Net cash flows IRR Table F.1 - Debt Option 1 Debt option 2 - bullet loan financing Funded amount (% of capital requirement) Loan period (nb of years) Annual cash interest rate (in %) Repayment premium 60.0% 4.0 7.5% 0.5% Year 0 Year 1 Year 2 Year 3 Year 4 Total Table F($ million) Initial Balance Funded loan amount Repaid loan amount Final Balance Interests Repayment premium Annuity payment Net cash flows IRR