In less than one page, double-spaced, discuss the accept or reject decision process of the HotelsRUS capital budgeting analyst in terms of both risk and return of these projects.

The cost of capital reflects the cost of financing new projects/investments for a company. Currently the cost of capital for an average company in the Hotel/Gaming industry is about 6.1%. In other words, for an average company in the hotel/gaming industry about $6.10 of every $100 raised through all sources of financing goes to pay returns to bondholders, stockholders, and preferred stockholders (if there are any).

Assume that the HotelsRUs Inc. has a cost of capital equal to the industry average cost of capital (6.1%) and has the following prospective projects:

Project A –

Invest in distressed hotel assets from other hotel companies with an estimated rate of return of 9.8%;

Project B –

Investment in a New Guest Services Rollout amid a pandemic with an estimated rate of return of 8.0%; and Project C – Renovation of five currently owned properties in the Sun Belt with an estimated rate of return of 5.5%.

In less than one page, double-spaced, discuss the accept or reject decision process of the HotelsRUS capital budgeting analyst in terms of both risk and return of these projects (A, B and C). Keep in mind that the estimated rate of return for each project is already reflecting (theoretically) all cash flow impact from that type of project.

Last Completed Projects