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    Capital Budgeting

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    The task is to calculate a capital budgeting for a new hotel (eco-hotel) in Ontario. Attached, you will find 4 excel files providing different statements (such as initial cost, depreciation, income statement, cash flow etc.), and there is few questions paste inside the attachment. And I will appreciate if you can solve the following question for me. Thx

    1. The step to calc the capital budgeting
    2. Anymore thing should I take consider?
    3. Can u please correct it?
    4. how should i analyze the capital structure?

    Again, thanks a lot!!!! If there is any further information you need, pls feel free to contact me. thx

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    Solution Preview

    1. how to select a required rate of return...wt is reasonable for a hotel industry?
    Compute for the cost of capital for the company. Cost of capital can be computed by using WACC or weighted average cost capital which asks you to identify the costs of debt and equity. Cost of debt is equal to how much the bank charges while cost of equity can be computed using a variety of tools including CAPM.

    2. eco. life? u mean 10 years for my case?
    Economic life means how many years will an asset be used. For example, vehicles usually break down after 4 or 5 years The economic life of an asset does not necessarily equate to the life of the project itself.

    3. so we dun need any number from income statement or balance sheet, there is anything related to capital budgeting? since we r brand new hotel, all the sales n cost should be detail, rite?
    All supporting computations on how you arrive at sales and costs should be ...