A+ Answers

1.     The time value of money can be the interest or profit than can be earned by investing it wisely. At the hotel management companies I have worked with, the hotel management had to provide a list of capital projects (investments) they wanted the ownership groups to fund. The ownership group would then have to determine which projects to allocate funds towards. There were a variety of ownership groups and a variety of hotel brands involved but one thing was the same for all – management had to present a credible case for why ownership should spend the money on their hotel projects and not another hotel’s projects. For those managers who understood discounted cash flow analysis and could provide good support for their projects they tended to get the funds they needed. So as future hospitality managers, how are you going to convince ownership that they are investing wisely with your projects? What specifically are you going to present to them?( and since all the hotel managers are going to say that if you give me the money I will make money you will have to go a step better..)

2.     the key to capitalizing on TVM is about it being invested wisely. As business managers we will constantly be put in positions of deciding which investment to make (or not to make). Should I convert those two guest rooms into a suite or turn them into a conference room? What should I do with that $3,000 utility rebate I got from the gas company? Put it in the bank, spend it on guest supplies or furnish a business center in the lobby? All these involve time value of money decisions. Who remembers the old Popeye cartoons with Olive Oyl and Wimpy? Wimpy was clearly the financial genius of the group, he understood the time value of money. His favorite refrain to Popeye was “I will gladly pay you tomorrow for a hamburger today”. Class, assuming Wimpy had the money “today”, why would he rather pay for the hamburger “tomorrow”? What implications does this have for a business person? Give this one some thought before you respond.

3.     Is it possible that economy can trump location? When I opened my bistro/gallery it was in an area of downtown that was mostly old buildings converted into condos.  There were a few art galleries but not much retail. I was betting that all the new condos would eventually attract more retail and thus generate more traffic in the area. Unfortunately my investors didn’t want to wait long enough to find out so we sold to a well financed and locally recognized restaurateur. Are there locations that are safe from economic downturns?

4.     So class, much of what we have discussed involves the current state of affairs for the hotel however there is a mention of the past and future.  So given our current economic environment and all these discussions in the news about the “new normal”, is it still ok to determine market value using past performance as an indicator?