Location: Pocatello, ID
For Sale Website:
The attached spreadsheet is for the Best Western Plus Cottontree Inn located in Pocatello, Idaho, and currently listed for sale of $6,100,000. The model that our group prepared is a pro forma income statement and balance sheet for the actual hotel. We based our pro forma on industry assumptions in the region of Idaho, particularly Pocatello, also doing an analysis on the break-even of the company, weighted average cost of capital (WACC), and internal rate of return (IRR). Our spreadsheet allows for changes in different factors, allowing flexibility for potential changes and what those changes reflect.
With the analysis that we have done, our weighted average cost of capital was calculated to be 8.32%, with an IRR of 9.49%. In order to change to make the cost equal to the IRR, we needed to change the debt and equity proportions. We tried to lower our debt, but it did not help us. The WACC and IRR are very close to each other, but it didn’t work out. We tried a proportion of 60% debt and 40% equity, but it still didn’t get any closer.
Because of the analysis that we have run, we have concluded that we would decide to buy the hotel. We would be able to generate enough cash to pay back the investors and also make a profit. We have a positive net present value of $362,173. Our IRR is above our WACC, which shows that we would be profitable, even having more debt than we need. We tried to adjust that, but it did not work. Despite that, we still believe that buying the hotel would be a good investment because we will be making a profit on our hotel.