SUPER $8-$ Case AnalysisPreparation in Groups$1.$ Analysis of Market Demand$2.$ Revise historic statement operations$3.$ Project Cash Flow$4.$ Place a value on the motel using DCF$5.$ Place Value using sales comparison and industry rule$-$of$-$thumb$6.$ Identify and assess the qualitative advantages and disadvantages of selling the Super $87.$ RecommendationAnalysis of Market Demand$1.$ What will happen to the Super $8$ Occupancy Rate, ADR and Revpar?$2.$ Can the Super $8$ be sustainable in these market conditions?$3.$ Supply of rooms in the Guelph lodging market will increase by XXX rooms$4.$ Does Super $8$ have the same target market that its competitors do$?5.$ Estimate the Occupancy Rate and ADR, Room Revenue for each year$6.2007$ Decrease XX$\%$ in Occupancy Rate and XX$\%$ in ADR YOY $($Year over Year $2007$ x $2006)7.2008$ XX$\%$ decrease in Occupancy rate and ADR YOY$8.$ Economic environment and new rooms supplyRevise historic statement operationsTo estimate future Cash Flows, it is crucial to revise the historical financial information$\mathrm{.}1.$ It is crucial to separate variable and fixed expenses$2.$ Four variable costs: Royalties & Loyalty program & reservations fees $($vary with room revenue$),$ Wages & benefits afterexcluding the portion related to manager salaries and guest room telephone vs$.$ phone office usage$3.$ Management fee received from affiliated company from revenue in $2005,$ as it is NOT revenue associated with the Super $8.$It was used as a tax planning strategies $-$ What should be done?$4.$ Manager salaries to market based rates What should be done?$5.$ Bonus from wages and benefits, as it is mentioned in $2003$ and $2005$ What should be done?$6.$ Reserve for replacement item to account for yearly capital renovations PIP $($property improvements plans$)7.$ Remove non$-$cash flow items: $-$ Amortization, as this doesnt involve a cash flow outflowCash Flow Projections$1.$ Estimate Revenues: Calculate available rooms for each projection year, calculate room revenue$2.$ Calculate restaurant lease income to reflect inflation rate for each projection year$3.$ Estimate variable expenses: percentage of room revenue that is loyalty program & reservation fees, based on roomrevenues. For each projection year of loyalty & Reservation fees, multiply this projection year factor by the correspondingroom revenue. This scenario is similar for wages & benefits. Telephone expense varies with telephone revenue$4.$ Estimate fixed expenses: Calculate it to reflect the inflation rate for each projection year. Please check equipment rentitem$5.$ Calculate the reserve for replacement, adding capital improvements in $20096.$ Calculate the income taxes for each projection yearPlace Value using sales comparisonand industry rule$-$of$-$thumb$1.$ Exhibit $11$: The price per room varies from $ $67,708$ to $ $120,583,$ with the majority of sales being clusteredbetween $ $88,000-$ $ $98,0002.$ Comparable sales approach: estimates ranging from $$2\mathrm{.}4$million $-$ $ $4\mathrm{.}3$million, with the majority of estimatesbeing in the $$3\mathrm{.}3$million to $$3\mathrm{.}5$million range$\mathrm{.}3.$ Rule$-$of Thumb: the hotels are generally sold for two to four times room revenues. Based on $2005$ annualroom revenue of $ $808,125($Exhibit IM$-3),$ this rule$-$of thumb suggests that Super $8$ would sell for between$$1\mathrm{.}6-$$$3\mathrm{.}2$millionPlace a value on the motelDiscounted Cash Flow$1.$ Estimate the future Cash Flows$2.$ Determining an appropriate discount rate to use$3.$ Recognizing that cash flows will continue after $10$ year period, estimated and account for these additionalCF$4.$ Calculate the Net Present Value $($ NPV$)**$ WACC: Weighted Average Cost of Capital $=9\%($rounded up$)19\%$ of market rate$/$ Cost of Capital for Debt Financing $=6\%/$ Corporate Tax Rate $=18\mathrm{.}6\%/75\%$ of financing debtIdentify and assess the qualitative advantages anddisadvantages of selling the Super $81.$ Advantages:$-$ There may not always be a buyer wanting to purchase it$-$ Others$($at least three more$)2.$ Disadvantages:$-$ There is a sentimental attachment, since they have owned it for $20$ years. It was their first property$-$ Others$($at least three more$)$Recommendation$.$