Borders Hotel Corp. Case

Topics: Investment, Corporate finance, Rate of return Pages: 4 (837 words) Published: January 20, 2012
MIS 49F
ASSIGNMENT 2
BORDERS HOTEL CORP. CASE

SOLVED BY
Özgür İlker AĞIRMAN
Özlem ÖNCÜ

2012

TABLE OF CONTENT

BORDERS HOTEL CORP.3
THE BHC PROJECT3
Financing Alternatives:3
FINANCIAL STATEMENTS4
Balance Sheet4
Earning Before Interest and Tax5
Impact of Financing Options on Earnings6
Balance Sheet – Year 17
EVALUATION OF ALTERNATIVES8
Alternative 1 : 20-year mortgage8
Alternative 2 : Common Stock Issue8
Alternative 3 : Common Stock and Preferred Stock Issue8
ALTERNATIVES FOR DANIELS’S INTEREST9

BORDERS HOTEL CORP.

Karen Daniels , president of Borders Hotel Corporation (BHC) , has to investigate three financing alternatives in order to evaluate their impacts on viability of the BHC , returns to herself and outside investors. She has to consider overall effectiveness of financing choices by taking earnings and expenses depending on occupancy levels .Because Daniels think that profitability forecasting of the hotel is related to occupancy levels that are 75 per cent (realistic) and 50 percent (lowest possibility). Any proposal that will give the maximum earnings should be selected in order to raise $2,275,000 for BHC. THE BHC PROJECT

* Five outside board members and Daniels invested $25,000 each (total = $150,000), * Land of the hotel close to Huron Motor Courts , which Daniels owned was appraised at $975,000.Under the purchase agreement , BHC contracted to give Daniels 97,500 shares of common stock for this land * BHC would negotiate a 10 percent , five-year term loan of $1,100,000 with the furnishing suppliers. * After these three financing arrangements ; BHC raised an additional $2,225,000. * BHC has to make decide about how to reach $2,275,000 by deciding the most feasible method of raising the capital. Financing Alternatives:

1. Mortgage Debt
* The mortgage would be for $2,275,000 , 20 year-term , at eight percent. * The annual principles payments would be...
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