Question

Private or Public for Coque Hotels Coqul Hotels Co. specializes in developing resorts and spas for busy people who are always on the go and need to relax. Each location is specially chosen for the beauty of its setting the ambiance of the city and the ease of arrival for its guests. Coqui Hotels are located all over the world in countries like France, Brasil, Greece, Italy, and many other locations. The company's mission is to provide our guests with the most relaxing experience that they would find at any place in the world." Coqui Hotels Co. has hired a consultant to analyze its business and determine if the company should remain privately held or go public. The company has experienced an influx of business from U.S. travelers over the last couple of years. U.S. employees tend to work very hard, so when they have time off to relax, they want to get away from everything and Coqul Hotels is the perfect place Management believes there is big market for their resorts and the best option for expansion is through an IPO. Last year, the company's cash flow reached nearly $7.5 million. Overall the company has been enjoying annual cash flow increases of 5% QUESTIONS 1. What price range would you currently assign to Coqui Hotels Co. if you were to set it as a private operation? 2. If you were an owner, would you go public? Why or why not?

Answer 1

Answer 1 :- Free Cash Flow is equal to = 7.5

Growth in FCF = 5%

Since, Range for cost of capital = 7% to 12%

Value = FCF (1+growth in FCF) / (WACC – Growth in FCF)

Then, Value at 12% WACC = 7.5*(1+5%) / (12%-5%)

= 113

Value at 7% WACC = 7.5*(1+5%) / (7%-5%)

= 394

Price range for Coqul Hotel should be from 110 to 400 million.

Answer 2 : - The most significant explanation an organization proprietor might want to go public is to

1. Raise Fund - IPO gives extra money to fuel organizations development and Capex necessities

2. Enhance Risk - Once open all investors share the danger in organization execution

3. Less expensive Debt - Once an organization is open, it makes some arrange capacity to get ideal rate obligation

So, as a owner, if we believes that company is performing well and it will have enough investors interested in investing, IPO provides a source of fund to grow the business further. Final decesion will be taken by the owner itself choosing percentage of stake will give or retain.

=======================================================================================