Title page for ETD etd-10242009-020356

Type of Document Master's Thesis
Author Zeng, Yee
URN etd-10242009-020356
Title Cost of capital :a practical model incorporated with risk assessment for hotel investments in the middle-price and economy segments
Degree Master of Science
Department Hotel, Restaurant, and Institutional Management
Advisory Committee
Advisor Name Title
Olsen, Michael D. Committee Chair
Higinbotham, Randell W. Committee Member
Kwansa, Francis A. Committee Member
  • Hotels
Date of Defense 1993-05-05
Availability restricted
Hotel investments, which have far-reaching impact on hotel companies'

long term financial health, will continue to be the primary mode for hotel

companies' survival and growth. However, top management has been facing a

changing industry and investment community to which they are required to adapt.

Consequently, the old fashioned gut-feeling types of decision making are no

longer appropriate for sound hotel investments. It is the primary objective of this

study to develop a model for hotel investment risk assessment and appropriate

cost of capital estimation in the middle-price and economy hotel segments for the

investment's capital budgeting purposes.

The hotel investment risk assessment and cost of capital estimation model

research was conducted using the focus group interview, the Delphi Technique,

and the case study. As exploratory research, the focus group interview was

conducted with the participation of hotel executives and general managers, hotel

owners, and bank lenders from the Virginia area. Key investment risk factors were identified from the opinions of this panel, which represented different

perspectives and needs. The summary findings laid out the foundation of the

Delphi Technique survey_

The Delphi survey was conducted among hotel general managers, hotel

executives, and hotel owners within three hotel chains in Virginia, Maryland and

Delaware. They consisted of a professional panel of 19 members. The first task

accomplished by the panel was to further validate the key risk factor profile

developed by the focus group interview. The second task was to rate the level of

influence of the identified factors using a five point likert-type scale (5=very

influential, 1 = little influential). Three rounds of the survey allowed the panel

members to achieve a consensus on the issues.

A total of 36 hotel key investment risk factors in the middle-priced and

economy segments were agreed to be included in the investment risk assessment

framework. In addition, a ranking of all factors was produced based on each

factor's importance and influence level. All the factors received a higher than

average (rank scale 3) ranking. The empirical finding provided a valuable

franlework for the subjective risk assessment in the cost of capital estimation


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