LHC is a major hotel chain. The company operates 35 hotels of which 14 are owned by it and the rest are owned by others but managed by LHC. LHC's operating revenues and expenses for the just concluded year (year 0) were

LHC is a major hotel chain. The company operates 35 hotels of which 14 are owned by it and the rest are owned by others but managed by LHC. LHC's operating revenues and expenses for the just concluded year (year 0) were as follows: Particulars in Million Operating Revenues Room rent 1043 Food and beverages 678 Management fee for managed properties 73 Operating Expenses Materials 258 Personnel 258 Upkeep and services 350 Sales and general administration 350 Assets Net fixed assets (Gross Block 2110, Dep 600) 1510 Net current assets 516 Liabilities Net worth 1126 Debt 900 LHC has no non-operating assets. At the beginning of year 0, LHC owned 2190 rooms. It has planned the following additions for next 7 years. Most of the land needed by the company for these additions has been already acquired. Year Rooms (in numbers) Investment in ₹ Millions 1 90 200 2 130 300 3 80 240 4 130 500 5 186 800 6 355 1400 7 150 1300 A good portion of investment in year 7 would be towards purchase of land. It is assumed that the addition will take place at the beginning of the year. For developing the financial projections of LHC, the following assumptions may be made: the occupancy rate will be 60% for year one and thereafter it will increase by 1% per year for next 6 years. the average room rent per day will be ₹ 2500 for year one and it is expected to increase at the rate of 15% per year till year 7. food and beverage revenue is expected to be 65% of the room rent. material expenses, personal expenses, upkeep & service expenses, and sales & general administration expenses will be respectively 15, 15, 18 and 18 percent of the revenues excluding the management fee. working capital investment is expected to be 30% of the revenue from owned properties. the management fee for the managed properties will be 7% of room rent. Room rent from managed properties will be equal to the room rent from owned properties. depreciation is expected to be 7% of net fixed assets. effective tax rate 20%. The market value of equity at the end of year zero is ₹3050 million. The imputed market value of debt is ₹900 million. Stock has a beta 0.921. Risk free rate of return is 12% and the market risk premium is 8%. Post tax cost of debt is 9%. FCF is expected to grow at a rate of 10% per annum after 7 years. Build projections for next 7 years.