Instructions: Using the attached Willowbend Suites case, produce the following:
1) Pro-forma cash flow financial statement
2) Interpretation of the cash flow financial statement
3) Computation of the Net Present Value, Internal Rate of Return, capitalization rate,
and breakeven occupancy ratio.
4) Provide a narrative that will contain a comparison of pursuing the project (i.e. taking a
loan an using equity) versus investing the equity in the risk-free Philippine Treasury
bills (As of May 29, 2023 5.7933%)
—--------------------------------------------------------------------------------------------------------------Willowbend Suites
The hotel will be called Willowbend Suites and will sit on a property with an area of 1,000sqm located along A.S. Fortuna St. in Cebu City. The building will have 12 floors (inclusive of
two basements) and will have a footprint of 10,256-sqm as measured on the building plans.
The project cost is estimated at P630M inclusive of land, building machineries, equipment,
and FFEs. The revised cost details are as follows:
Particulars
(Amounts in PhP except ratio)
Proposal
Gross TAV
(based on bank appraisal)
Land and Land improvements
50,000
19,000
General - Mobilizaiton / Permits
8,787
Siteworks, Land Preparation
10,637
Sub-Total - Land
69,424
19,000
Building
332,478
369,216
Machinery and Equipment
Smoke Alarm/ Fire Detection
11,469
Cable/ CCTV/ Telephone/ TV system
56,700
Electrical/ Gen Set
35,317
Mechanical/ Elevators/ Aircon
50,834
Software/ POS/ Bldg. Mgt. Program
11,628
Sub-Total Machinery and Equipment
Others - Engineering Cost
165,948
7,700
Misc. (pre-operating expense)
6,910
Sub - Total Others
14,610
Furniture and Fixtures
50,000
Total
632,460
Loan
343,000
Equity
289,460
DE Ratio (x)
388,216
1.18
Construction cost per square meter (excluding equipment/machineries) is around P39K but
will go up to P61K when equipment/machineries are included. These values are still within
industry standard according to Arcadis (formerly Langdon and Seah Phils. Inc.) with
standard costing as follows:
Description
Building
(PhP/ sqm)
M&E
Total Services
Total
Hotels
Budget Hotels - 3 star, midmarket
34,000 - 46,700
12,450 - 16,050
46,450 - 62,750
Business Hotels - 4 / 5 star
35,100 - 46,800
13,600 - 20,350
48,700 - 67,150
Luxury Hotels - 5-star
49,100 - 54,200
14,300 - 23,700
63,400 - 77,800
Willowbend Suites is envisioned as a 5-star hotel that will cater to the middle and upper
class tourists in Cebu City. It has about 57 hotel rooms of various sizes, a coffee bar/lounge,
a restaurant, music lounge/dining, grand banquet hall, events garden hall, meeting rooms
and other amenities. Over-all, it will be a high-class and intricately designed hotel that will
mirror elegance and grandeur. Mr. Wu, the owner, commissioned the services of Makati
Development Corp., a construction company based in Metro Manila. Big ticket projects of
this contractor include Ayala Land projects in Makati Central Business District and Bonifacio
Global City in Taguig City. The hotel project is being supervised by a local engineer and
architect.
The two (2) basements can accommodate 20 cars and will house the hotel’s security room.
The building plan includes the following:
1st Floor Reception and coffee bar
2nd floor Restaurant and music lounge
3-8 floor Rooms (50% - P5.5K ; 50% - P12.5K)
9th floor Restaurant and banquet hall
10th floor Events/function halls
Competition
The city of Cebu is a haven for tourism. It has seen with recent phenomenal increase in
tourist influx following the opening of the Mactan-Cebu International Airport Terminal 2. This
has resulted in the increase in hotel occupancy in the city. The conversion of other hotels
into Korean English Schools in recent years has contributed to the demand. Moreover,
renovations of local residences to transient houses and establishment of condotels in the
area has also not really dampen the occupancy of some of the known hotels in Cebu.
Serious competition may, however, be posed by the higher end hotels like Shangrila’s
Mactan Resort and Spa, the upcoming Sheraton Hotel and a host of other known hotels in
the area
.
Financial Projections Assumptions:
1. On initial year of operation, occupancy rates on lean and peak months range from 45% to
80%, for at an average of 65%. On the succeeding years, the average occupancy rate is
assumed to increase by 5% to 70% and stayed flat over the term of the loan. Peak months
are December to June.
2. Room rates will range from P5.5K to P12.5K. Events, banquets and other parties are held
4x during lean and 8x events during peak months. Restaurant, music lounge and bar at 80%
of the check-in customers on lean and 200% on peak season. During peak season, it was
assumed that walk-in customers will dine.
3. Direct cost and operating expenses are initially at 20% and 35%, respectively. The rates
are increased by 5% in 2024 and 2032 to cover for rising costs and regular maintenance of
facilities.
4. Income tax is computed at net income at 35%
5. Long-term debt and current portion are computed based on 8-year payment period at
fixed interest rate of 5% p.a. Loan drawdown shall be based on staggered releases.
Advances from shareholders totaling P36.57M represents debt servicing while the hotel is
not yet operational. This shall be fully paid once the hotel generates income. Interest
expense is at year 1 of the loan (1-year grace period). Principal plus interest paid on year 2
7. Equity infusion assumed at P289.461M while initial capitalization at P6.913M.
8. Capex for building construction alone is at P563.036M. Depreciation for the building is
based on cost of P332.478M is over 40 years economic life while for the M & E totaling
P165.948M and Furniture and Fixtures of P50.0M are over shorter period of 10 years.
Outright expense is assumed on the Other costs totaling P14.61M.