Financial Problems

Problem 1 (50%)

Financial Forecasting for Marina Vista Grand Hotel for 2025-2029

Marina Vista Grand Hotel is a 4-star city-center property (300 rooms) preparing a 5-year operating

forecast. After a partial renovation in 2024, management will roll out energy-efficiency measures

including solar panels to curb utility inflation from 2026 onward.

Initial Data for 2024 (Base Year):

1. Hotel Overview:

• Number of Rooms: 300 (Main source of Revenue)

• Days Open: 300 (The hotel plans to close for 65 days for renovation

and staff training)

• Occupancy Rate: 75%

• Average Daily Rate (ADR): €120

2. Revenue Streams:

• Food and Beverage Revenue: €2,000,000

• Spa Revenue: €500,000

• Gym Revenue: €300,000

• Conference and Event Hosting Revenue: €600,000

• Parking Services Revenue: €200,000

3. Departmental Expenses:

• Rooms: €1,200,000

• Food and Beverage: €1,000,000

• Spa: €250,000

• Gym: €150,000

• Conference and Events: €300,000

• Parking Services: €100,000

4. Undistributed Operating Expenses:

• General and Administrative: €600,000

• Marketing: €400,000

• Property Operations and Maintenance: €500,000

• Energy: €300,000

Assumptions for 2025-2029 Forecasting:

1. Operational Days Increase:

The hotel plans to increase its operational days by 10 each year, starting from

300 days in 2024, aiming to reach full-year operation (365 days) by the end of the

forecast period.

2. Market and Operational Changes:

• The annual occupancy rate increase by 1%, reflecting enhanced marketing

and local tourism growth.

• ADR increases by €5 annually due to inflation and room upgrades.

• Food and Beverage revenue to grow by 2% per year.

• Spa and Gym revenues expected to grow by 3% annually.

• Conference and Event Hosting Revenue to increase by 4% annually due to

improved facilities and marketing.

• Parking Services Revenue to increase by 1% annually.

3. Cost and Expense Adjustments:

• Rooms department expenses to increase by 2% annually.

• Food and Beverage expenses to grow by 1.5% annually.

• Spa and Gym expenses to increase by 1% annually.

• Conference and Events expenses to grow by 2% annually, reflecting the

increased business.

• Parking Services expenses to grow by 1% annually.

• General and Administrative expenses to increase by 1% annually.

• Marketing expenses to grow by 3% annually, reflecting a strategic push to

increase visibility and bookings.

• Property Operations and Maintenance expenses to increase by 2% annually.

• Energy expenses to see a 5% increase in 2025 and 2026, then +2% per year

from 2027 onward due to savings from solar panels installed during 2026.

Required:

Using the provided data, please compute the Gross Operating Profit (GOP) for the years 2024

to 2029.

Problem 2 (30%)

Panama Resort is strategizing its financial plan for the first half of the year. The finance

team has estimated figures based on the Average Daily Rate (ADR) and the number of

nights booked. The resort also anticipates income from other amenities like recreational

activities and exclusive event hosting. The team is tasked with creating a cash budget that

encompasses these estimates and the anticipated operating expenses.

Forecasted Financials:

• Room Revenue Projections:

• The resort has predictions for the number of nights booked for each month

and the ADR for January, which is expected to increase by 10% per month

due to inflation.

• Additional Service Revenue:

• Predicted revenue from recreational activities, event hosting, and other

services.

• Operational Costs:

• Encompass expenses for resort operations.

Monthly Projections:

Month Nights Sold ADR ($) Additional Service Revenue ($) Operational Costs ($)

January 2,200 130 100,000 180,000

February 2,400 105,000 185,000

March 2,700 110,000 190,000

April 2,900 115,000 195,000

May 3,100 120,000 200,000

Financial Operations:

• Collections:

• Room Revenue: 55% collected in the same month, 35% the following month,

10% two months after.

• Additional Services: 75% collected in the same month, 25% the following

month.

• Payments:

• Operational Costs: 70% paid in the same month, 30% the following month.

• Fixed Costs:

• Employee salaries: $160,000 per month.

• Utilities: $50,000 per month.

• Depreciation: $20,000 per month.

• Beginning Cash Balance in March: $350,000.

Required:

1. Draft a monthly cash budget for March, April, and May, incorporating:

• Collections from room revenue and additional services.

• Payments for operational costs and fixed costs.

2. Ensure a minimum cash balance of $300,000 at the end of each month.

Problem 3 (20%)

Hotels HD and LD are identical except for their use of debt and the interest rates they pay--

HD has more debt and thus must pay a higher interest rate. Based on the data given below,

how much higher, or lower will HD's ROE be versus that of LD, i.e., what is ROEHD -

ROELD?

Applicable to Both Hotels Hotel HD's Data Hotel LD's Data

Assets $3,000,000 Debt ratio 70% Debt ratio 0%

EBIT $500,000 Int. rate 12% Int. rate ?

Tax rate 35%

Good Luck