You have an opportunity to purchase the 23 site Plum Creek manufactured home/RV park for $250,000. The park caters to extended stay residents (six months or longer) and charges a market rental rate of $240 per site per month. You expect to be able to raise site rentals 3% per year to account for inflation. There are no tenant reimbursements or passthroughs. You plan a five year holding period so you create a six year proforma. The owner reports an annual vacancy rate of 10% but you believe an annual 15% vacancy rate every year of the holding period is a more realistic estimate. You use 15%. For expense estimates, you rely on public records (tax office), an income/expense statement provided by the owner/seller, and Darrell Hess & Associates, a national manufactured home park brokerage company that compiles expense data from hundreds of parks nationwide. The previous year’s property taxes were $5,042. The new assessment and tax rate has not been set, so the previous year’s taxes are used in your pro-forma for the first year. Hazard and liability insurance is estimated to be 2% of effective gross income (EGI) in first year. Each site is individually metered for electricity and the tenants are responsible for their usage. The park owner reported annual water and trash removal expenses of $5,460 for the previous year, and this amount appears reasonable for your first year projection. The annual administrative/management expense (part time on-site manager, advertising, legal fees, accounting fees and office expenses, etc.) is estimated to be 29% of EGI by Darrell Hess & Assoc. The owner did not report any maintenance expense as he did all of the work himself. You believe a $2,000 first year expense is reasonable for the road maintenance, landscape maintenance, etc. You expect expenses to increase 3% each year of the five year holding period except insurance and management expenses tied to EGI. Page 7 of 7 You have obtained a loan commitment from a bank for 80% (20% down payment aka equity contribution) of the purchase price with a 20 year amortization at 6% interest. 1) Create a six year Pro-forma statement of cash flows on an Excel spreadsheet. 2) Calculate the following ratios and indicators (all before tax) by Excel formulas at the bottom of the spreadsheet to three decimals: A) Operating expense ratio (annual operating expense/EGI); according to Darrell Hess & Associates, operators can expect a 50% operating expense ratio. B) All Five Years of Debt Coverage Ratio (NOI/debt service); 1.3 or greater is considered good by the lender. C) All Five Years Return on Equity (BTCF/equity invested); investor surveys indicate 13% or better is expected for each year. D) Using the IRV formula, calculate the indicated overall rate (cap rate) RO for Year One to see if it is within the 9-11% range for manufactured home parks indicated by a national investor survey. Use the $250,000 asking price as the value in IRV for the calculation. E) Calculate the value of the subject after the five year holding period (the reversion) using a 10.5% terminal RO. Remember to carry the pro-forma to a sixth year to obtain Year Six NOI. F) Calculate the unleveraged IRR of the cash flows using the $250,000 asking price. G) Calculate the NPV of the property using a 12% IRR

SWOT Analysis

            Marriott International Inc. is a leading firm in its industry. It is known for aiming to maintain its dominance in its position in the market. A SWOT analysis of Marriott shows the following;  

Strength

Marriott has a track record that shows it has never failed in integrating complementary firms. It has always been successful to do all this through mergers and acquisition. It has done all this to ensure its operation are smooth and with less completion. Marriott is innovative and has hotels all over the world. They are innovative because they recently launched a mobile app. You can see advertisements about it on Facebook or other social media platforms. (Marriott corporate.2017). You no longer must use a key to get into your room. You just unlock it with your phone now. Not just that but you can do a mobile check-in and skip the front desk. Also, Marriott has its presence and reputation all over the world which makes them well-known in quality business.

Weakness

            Marriott Inc. is well known for its desire need to expand. The business has expanded so much to the extent of failing to monitor and maintain the quality of their services throughout. I know this first hand all their hotels are not the same. Some may mention the fact that the Marriott is a family company and how this creates room for error. And it could. Understanding that family tradition and family opinions can offend others or promote an atmosphere that feels "stuck" can put a roadblock up for those future investors. (Marriott corporate.2017). Another weakness is even though they are expanding to many other countries, this could also lead to over population of the hotels and not further along other local companies or promote more of a diversity in the market.

Opportunity

            The opportunities Marriott has been modernizing their hotels rooms to fit the trending market and more profitable emergence into new marketable areas. (Marriott International Inc.2017) For the interior design point, there is room to create more of a unique home familiar style within the walls of its rooms. This allows for a better experience for the loyal customer and to the old customer who thought they may have not liked the hotel franchise. The other opportunity of emerging into new markets creates a profitable growth for the company to expand their presence into new categories such as the technology market. Bringing in the google home or amazon Alexa experience or personalize the delights that customer have in their everyday home and bringing it into the hotel room will only further the experience. (Marriott International Inc. 2017)

Threat

            Vulnerability to terror attacks- the travel industry is one that is highly targeted by terrorists. Especially 5 star rated properties. If it were to get attacked, the firm would lose its trust in their esteem clients. Threats to Marriott include more competition to enter the existing hotel industry and price freezing. As more and more innovative companies make a break through, there is more attraction to them and the idea to try something new in the customer's perspective, leaving Marriott to fend for themselves in the fight of hotel rooms. Also, as the market expands, the prices of other companies can tend to look better, especially if they offer the same amenities and rewards.

​​​​​​​

• Identify the most important or critical items on your SWOT Matrix that you believe warrant immediate attention to improve strategic management. Select one from each of the four categories.
• Be sure you justify your decisions.

3. In the US economy, nearly half of all workers employed by private firms work at the 0.3% of firms that have 500 or more employees.

a. What does this relationship mean for the power relationship between large firms and the labor force?

b. What do you think these large firms having such a market share of labor means for labor prices (wages)?

c. Can you propose a policy that would counteract this power imbalance?

The real risk-free rate, r*, is 1.6%. Inflation is expected to average 1.3% a year for the next 4 years, after which time inflation is expected to average 4.2% a year. Assume that there is no maturity risk premium. A 10-year corporate bond has a yield of 8.4%, which includes a liquidity premium of 0.3%.

What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

Ten policyholders file insurance claims. Three of these claims are fraudulent. Three of the ten claims are randomly selected for thorough investigation. If X represents the number of fraudulent claims in the sample, P(X = 0) is _______________.

a. 0.7083 b. 0.2917 c. 0.0083 d. 0.3622 e. 0.5

QUESTION 19 For #18, what is the mean (expected) number of fraudulent claims in the sample?

a. 0.3 b. 0 c. 1.5 d. 0.9 e. 3

[Positive test] A patient is tested for a virus that is believed to be present in 5% of the population. If the test result is positive, compute the chance the patient actually has the virus… a. If the false-positive rate is 4% and the false-negative rate is 1% b. If the false-positive rate is 2% and the false-negative rate is 0.3% c. If the false-positive rate is 0.1% and the test never gives a false negative. d. If the test never gives a false-positive or a false-negative.

Q3. 40% of 500 employees of a company are females (other males). 30% of the employees are credit card

       holders, including 60 females. Use the contingency table for the problem situation to find the

       probability that an employee picked at random is:

       a. A female or is not credit card holder? (0.82) b. A male or a credit card holder? (0.72)   

       c. A female and a credit card holder? (0.12)

       d. A credit card holder if we know that the employee is a male? (0.3)                                             

Use the following information for Questions 23-24:

You are the manager of Lobo Corporation and you must decide between two mutually exclusive projects.The following information is available for the projects:

Required:

Compute the NPV for Project A.

A statistician claims that the proportion of students who will vote for Mr. K to be the next president is 0.54 with the standard deviation of 0.3.

1. Identify the hypothesis test
2. If 1000 students are randomly selected and 455 of them will not vote for Mr. K, what is the P-value? What can you conclude based on 5% significant level?
3. Construct a 95% Confidence Interval
4. If Mr. K is ended up losing the election, does this make sense? Why or why not?