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Copy of Case-1-Group-24.pptx
1. Welcome to our Presentation
Case Study No:01
PRESENTED BY
GROUP-24
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2. Group Profile
Serial No Name ID No.
1. Jannatul Naima 18-065 (B.B.A.)
2. Md. Obydul Hoqe 18-087 (B.B.A.)
3. Md. Shaiful Islam Id:17-063 (BBA)
Group no:24
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3. About UniHost Corporation
✔ Previously UniHost was named as “Journey’s End” in 1980’s.
✔ It was heavily involved in the development, syndication and management of motels and
hotels in Canada and the northeastern United States.
✔ UniHost developed new properties, built hotels and then sold the majority ownership of the
property to a group of individual investors through limited partnerships
✔ The company had formed a joint venture named Choice Canada with U.S.-based Choice
Hotels International
✔ Since 1993, UniHost had been a strong performer relative to the Canadian hotel industry as
a whole
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4. Analysis of Economy
✔ The severe real estate and hotel industry downturn of the early 1990s
✔ Industry performance was positively related to the business cycle and was dependent on a
large number of economic factors that affected industry performance
✔ Hotel Ownership could be viewed to be a higher risk venture than other real estate
activities given the lack of long-term leases.
✔ The Canadian market was considered to be in better condition than US market, with a four
per cent increase in occupancy (from 58 to 62%) combined with an increase in prices of
7.1 per cent (from $69.32 to $74.25 average daily rate) from 1992 to 1996.
✔ The Canadian hotel industry was fragmented with two-thirds of hotels independently
owned and approximately one-third of these remaining unflagged.
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5. Economic Analysis-Porter’s Five Forces
Model
Rivalry
among
existing
competitors-
Moderate
Threat of new
entrants-LOW
Only ruler in
hotel industry of
Canada
Threat from
buyers-HIGH
As
consumers’
preference
changes
Threat of
substitutes-
LOW
In case of
tourism
industry
Threat from
suppliers-HIGH
As opportunities
for long term
financing are not
available
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6. Political
• High growth
due to tax
legislation
Economic
• Hotel industry
is depended on
economic cycle
Social
• Rich in natural
attraction and
cultural heritage
• mediocre
hospitality and
very good
proficiency
• the ability to
work
throughout the
year
Technological
• Advanced
technologies for
organization of
congresses,
festivals,
events, trade
shows
Environmental
• Reducing
energy
consumption
such as fuel,
electricity
becoming solar
based.
Legal
• Consumer law
• Health and
safety law
• Employment
law
PESTEL Analysis
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7. Company Analysis-SWOT
Strength
1. Partnership with a number of hotels in Canada
2. Branding as “Quality” or “Comfort”
3. Have collaboration and ownership in different categories
of hotels
4. Establishment of limited partner liquidity program
Weakness
1. High variable cost
2. High risk ventures
Opportunity
1. Significant lacking in hotel services in Jamaica
2. Scope for utilizing existing management process in
Caribbean countries
Threat
1. Changes rapidly with the changes in economy
2. High acquisition cost
SWOT
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14. Problem Statement
► UniHost Corporation was in need of additional capital to expand the operation in
Caribbean countries. First choice of the company was Jamaica and it had several
alternatives to use as financing.
Such as: equity, convertible bonds, high yield bonds.
► Find the best way to finance the capital need of the company.
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15. Assumptions
► Assumptions
► 1. Retained earnings will full be use for growth purpose
► 2. Thus no dividend will be paid
► 3. 100% retention ratio
► 4. Company is now in rapid accelerated growth
► 5. Rapid Accelerated growth will continue up to 3 years as result of expansion.
► 6. Growth stage will be 10 years max
► 7. Begin a cyclical business will have an expected down turn during 2000 (as of early 1990
► 8. We expect the downturn will recover with in next 3 years
► 9. Additional projects will increase the sales growth by
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17. Alternative 1: 100% equity financing
▪Income tax rate=35%
▪No dividend will be paid
▪Terminal growth rate=2%
Value per share
is increasing
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18. Alternative 1: 100% equity financing
Co-efficient of variation is .6775.
Value per share is most sensitive to (-80.2%) the changes in WACC
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19. Alternative 2 (Equity + Debt)
Assumptions
► Inflation rate 2% will remain constant
► Risk free rate of 5.28% will remain
constant
► 100% retention ratio with no dividend
policy
► Corporate Tax Rate in Canada .35
Debt-Equity
Risk Free Rate 5.28%
Cost of Equity 12.4%
Cost of Debt 0.080
After Tax cost of debt 0.052
Weight ot Debt 0.628
Weight of Equity 0.372
Total Debt 408,264
Total Equity 241,503
Total Value(Debt+ Equity) 649,767
Corporate tax 0.35
WACC 7.89%
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20. Alternative 2
Total PV of FCFF 190,103
Terminal Value 382,941
Enterprise Value 573,043
Add: Cash and Marketable Securities 20,705
Less: Interest Bearing Debt 312,890
Equity Value 280,858
Total number of shares Outstanding 37,299,945
Value per Share $ 7.53
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21. Forecast values
Trials 1,000
Base Case $7.53
Mean $2.71
Median $(0.92)
Mode ---
Standard Deviation $117.37
Variance $13,776.47
Skewness 16.57
Kurtosis 353.99
Coeff. of Variation 43.28
Minimum $(798.99)
Maximum $2,500.76
Range
Width $3,299.75
Mean Std. Error $3.71
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22. Alternative Financing 03: Retained Earnings + Convertible
Bond + High Yield Bond
Financing required= 218000000
WACC has decreased.
At the Same time Equity
Value Per Share
increased.
Cost of Equity 12%
After Tax cost of Convertible bond 0.05395
After Tax cost of debt 0.048425
Weight of Debt 0.6127396
Weight of Equity 0.2675282
Weight of Convertible Bond 0.1197322
WACC 0.07
Total PV of FCFF 184388.87
Tarminal Value 505781.97
Enterprise Value 690170.84
Add: Cash and Marketable Securities 20705.00
Less: Interest Bearing Debt 312890.00
Equity Value 397985.84
Total number of shares Outstanding 37299945
Value per Share $ 10.67
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23. Alternative Financing 03: Retained Earnings + Convertible
Bond + High Yield Bond
Value per share is most sensitive to (-68.7%) the changes in
WACC
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24. Comparison
Scenario WACC Value per share
Share issue 8.20% $5.24
Share + Bond 8% $7.53
Convertible Bond +High Yield Bond 7% $10.67
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25. Recommendation
► UniHost Corporation is suggested for issuing convertible bond
and high yield bond with@ 8.3% and 7.45% interest rate for
the amount of 87.2 million.
❑ Retained Earnings-60%
❑ Convertible Bond-30%
❑ High Yield Bond-10%
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