HFT 6477 Summer A 2012
Florida International University
Jasinet Coble
Craig Wright
Lillian Vitale
Dillon Burke
Nuria Gutierre
Daniel Mayer
Introduction
• IHG is a holding company
• The principal activities: hotels and resorts,
with franchising, management, ownership and
leasehold interests in over 4,400
establishments, with more than 658,000 guest
rooms in over 100 countries and territories
worldwide.
7 Unique Brands
The pipeline totaled 1,144 hotels (180,484 rooms)
Regions
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Americas
Europe
Asia
Middle East and Africa
Greater China
Cost of Equity (CAPM)
• kE = Rf +(Km – Rf)
• Rf = return on the risk free asset
•  = Beta (Computed 1.42 – Please see Excel
attachment)
• Km = return on the market portfolio
• kE = .04 + 1.42(.12 - .04)
• kE = .1536 or 15.36%
Cost of Debt
• kD = Interest Expense/Interest Bearing
Debt (Total long term plus total short
term debt)
• kD = 56,000,000/691,000,000
• kD = .0810 or 8.10%
Weighted Average Cost of Capital
(WACC)
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WACC = kA = (1 – L)kE + L(kD) (1 – T)
L = Total Liabilities/Total Assets
L = 2,413,000,000/2,968,000,000
L = .8130 or 81.30%
kE = Cost of Equity
kE = .1536 or 15.36%
kD = Cost of Debt = Interest
Expense/Interest Bearing Debt
• kD = .0810 or 8.10%
WACC (Cont.)
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T = Tax Expense/Earnings before taxes
T = 81,000,000/544,000,000
T = .1489 or 14.89%
WACC = kA = (1 – L)kE + L(kD) (1 – T)
kA = (1 - .8130)(.1536) + (.8130)(.0810)(1 - .1489)
kA = .0848 or 8.48%
Adjusted Operating Cash Flows
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Net Income + Depreciation + Interest
Net Income = 473,000,000
Depreciation = 99,000,000
Interest = 8,000,000
• AOCF= 473,000,000 + 99,000,000 + -8,000,000
• AOCF= $580,000,000
Estimated Growth Rates
• Year 1 (2012) 4% - increased revenues and
dividends paid in past 2 years
• Years 2 (2013) - 4 (2015) - Growth rate change
increases of 2% each year:
– 120 hotel expansion starting at the end of 2013
– 26% portfolio increase
• 100 healthy hotels in US
• 20 luxury in China
Estimated Growth Rates cont…
• Year 2 8% - hotels will start expanding at the end
of year
– Cash flows will be minimal in this short time
• Year 3 10% - expansion continues & new hotels
are being established
– US expansion targets middle class – Europe & US
recession
– Chinese expansion targets domestic Chinese travelers
– booming economy
• Year 4 12% - expansion continues, larger cash
flows…
• Current value of share: $29.48
• Current price of share: $23.35 (6/10/12)
• We recommend potential investors to
purchase IHG shares!
Valuation
• IHG is financed heavily with equity
Any Questions?