Super 8

Q1: Forecast the free cash flows (FCF) for the years 2007 – 2017 of Super 8 Motel on a stand-alone basis by taking the following steps: Projection of room revenue The projection of Room Revenue was done by multiplying the total room nights and ADR taking into account the anticipated market conditions in the future. There were several assumptions which were made in order to estimate total room nights and ADR. Total Room Nights  In 2007, with the opening of Hampton Inn the total number of available rooms will increase by 95 (17% increase in supply). This hotel is located 2 km away from Super 8 Motel. We assumed that walk-in customers and direct reservation by phone do not decrease therefrom. But bookings from brand controlled channels will decrease by 30%. In 2008, with the opening of many other hotels, the total number of rooms will increase by 54%. Based on the observations in 2001, it is assumed that occupancy of Super 8 will decrease by 25% in all categories. After 2008, the demand for Super 8 will increase 2% based on the population growth of Guelph. ADR In 2007, the ADR increases by 1.4% (based on historical trends) and thereafter by 3% (Inflation Rate). The ADR does not grow by a larger percentage because of competitionWhy don’t we use the avg. ADR-growth rate of 2.1% like we used it in the last file??Forecast other income and restaurant lease income. It was assumed that other income is 7% of room revenues (based on historical observations). The restaurant lease continues to grow at the historical growth rate of 11% up to cap-level of 50’000. The cap-level will grow with the inflation rate by 3% p.a. Expenses  Advertising, interest and bank charges, room supplies, office expenses, repairs and maintenance, utilities, loyalty program and vehicle expenses are considered variable costs based on the average percentage of motel income for the years 2002-2006.

 Amortization, insurance, membership and licenses,...