HRTM 421 Final (A+ Graded Already)

Chapter 9: correct answers Hospitality Industry Applications of Time Value of Money Concepts and Skills Loan Components correct answers -principle -debt service -interest rate -amortization rate Principal correct answers The amount of money borrowed Debt Service correct answers fixed payments to the bank Interest Rate correct answers The percentage of a loan amount you pay in order to borrow the money -this is the interest percent they put on the amount you borrow from the bank b/c they aren't just going to give it to you for free Amortization Rate correct answers the number of years the debt service payment is based on The amount of principle the bank will lend is based on correct answers -cash flow projections -present value of business -loan to value ratio (LTV) -loan to cost ratio (LTC) -debt service coverage ratio (DSCR) Debt Service Coverage Ratio (DSCR) correct answers measurement of the cash flow available to pay current debt obligations (=cash flow / debt service) Questions to consider when securing a LOAN correct answers 1. what is the maximum amount i can borrow? 2. what is the maximum interest rate i can afford? 3. what will my debt service payment be? 4. what amortization rate do i need to negotiate? Questions to consider when raising EQUITY correct answers 1. How much equity can I raise based on my cash flow productions? 2. what would be the equity investors IRR? 3. How much ownership do I need to offer my equity investor to satisfy his investment goals? Debt service payments correct answers -Form of annuity -An even stream of cash flow for a number of periods