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Capital Prioritization Assignment
This assignment is worth 50 points, and will be graded based on the rubic. You may view the rubric by clicking on the assignment link.
Late work will not be accepted.
The Case
You are working as an Asset Manager for a major hotel ownership group. As a part of the annual budgeting process you are looking at several capital projects that have been submitted by one hotel in your portfolio. You have the capital funding available to do only one of these projects, and so you must select the project with the highest return. Capital Prioritization Assignment Help
Your company uses NPV as the primary tool for prioritization.
Background
Each year as a part of the capital budgeting process, hotels in your portfolio submit a 5 Year Capital Plan. Each year, your job is to review and approve the projects upcoming in the next year. Capital Prioritization Assignment Help
The projects fall into two categories. The first is “required” capital. This category includes Franchisor required cyclical renovations, the replacement of building systems and equipment that is required by end of life estimates.
The second category is “incremental profit” capital. This category includes projects for which there is a financial return that will improve the value of the hotel. Examples of the types of projects that are included in this category are: Space utilization changes, such as converting a restaurant or bar to meeting space (or vice versa), adding retail space, adding external amenities such as a pool bar, installing automated parking payment systems, adding labor saving technology, adding energy saving technology. Capital Prioritization Assignment Help
Each year, your company allocates a specific dollar amount for the “incremental profit” categories. Each Asset manager selects the project or projects that are forecast the highest returns. Then, the company senior management selects those projects from those submitted by the asset managers – also based on those forecasting the highest return. Typically, about 10% of the projects that are submitted by the hotels are approved.
As a part of the submission process, the properties complete a standardized Excel file that is formatted to provide the asset manager the information they need to calculate the Net Present Value of the projects. NPV is used by the company to prioritize the “incremental profit”.
Your company uses three different discount rates – based on the risk associated with the project. In consultation with the hotel, each Asset Manager determines the risk category, and the hotel includes this information on the project Excel template. This year, the discount rates are:
Capital Prioritization Assignment Help
- For low risk projects, a 12% rate.
- For moderate risk projects, an 18% rate.
- For high risk projects, a 24% rate.
The risk is based on the likelihood of achieving the proforma financial results the property is projecting.
The hotel has submitted the Excel file to you (it is included on the assignment link).
- For each project, enter the discount rate based on the project risk.
- Calculate the NPV of the project using the investment amount and the 5 year estimated cash flows provided by the hotel (these have already been analyized by you).
- When you submit, enter the project you are selecting in the text field for the assignment.
- Save the Excel file using the format “yourname.xlsx.” Upload this file using the assignment link.
Make certain you watch the video on how to calculate NPV in Excel!!!! You must use the Excel formula.
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