Airbnb Bloomberg Investment Project
FIN 2200 – Winter 2022
David has always wanted to retire and start his own bed and breakfast. Is this the year he’ll finally live
the dream?
David has heard about Airbnb and how he can list his property through this service in order to match
with people wanting a place to stay. He’s heard you are a bright FIN 2200 student who has just started a
consulting LLP with some of your FIN 2200 classmates. He has hired you to do a cost/benefit analysis of
purchasing a property and then renting it out on Airbnb. His decision will rely on your opinion on
whether it is a good idea to buy a place and list it on Airbnb. He notes that:
The project is due at 11:59pm on April 25, 2022 on UM Learn.
You may work in groups of up to 5 to complete this assignment. Please form your own groups.
You are allowed to work in a group with students in other sections. If you do not have a group
and would like to be assigned to a group with other students who are also looking for a group,
please email your instructor.
As in the workplace, it is essential to learn how to function effectively within teams and
contribute to group goals. We recommend you meet online using Skype, Google Hangout,
Zoom, etc.
o It is your responsibility to ensure you are adequately and consistently meeting your
obligations and responsibilities to the team. It is also your responsibility to inform
fellow team members if they are not meeting their obligations. To ensure this is the
case, peer evaluations will occur anonymously and confidentially at term-end after the
project has been submitted. These peer evaluations may lower one’s score relative to
the group’s score (but will not raise one’s score relative to the group’s).
You must submit one electronic version of the assignment per group on UM Learn. (Go to
“Assessments” and then “Assignments.”)
Please ensure the first and last names, student number, and section number for all group
members are on the first page of the assignment submission. You will lose 2 marks for each
piece of this information you fail to correctly include.
The assignment is worth 8% of your final grade.
Much of the information you will need for this project is available on Bloomberg terminals.
Details on how to register to access Bloomberg terminals as well as Bloomberg tutorials will be
posted in the Announcements section of UM Learn.
Please note what currency your values are in (you may need to use foreign data/values).
Assume income tax rates are 20% (and you are a sole proprietorship or partnership).
Reference or document any data you use.
Your report should be professional, clear, concise, logical, and easy to understand with a direct
writing style, free from grammatical and spelling errors. If he is impressed, David may
recommend your consulting start-up to his colleagues, which would really help you grow your
business.
This assignment is relatively open-ended. You have been hired as consultants, so use your best
judgment. Accordingly, your instructor may answer clarification questions but they will not be
providing specific guidance on your decisions. If you choose to do or assume certain things, be
sure to explain why it is the best course of action and reference any data/resources you use.
Each part of your assignment will be graded on the following rubric:
o NA (Not addressed) - Student does not address this.
o NC (Nominal Competence) – Student identifies an issue, but explanation/documentation
of assumptions is superficial or missing.
o RC (Reaching Competence) – Student discusses the issue(s) but discussion/assumptions
lack depth.
o C (Competent) – Student discusses the issue(s) in sufficient depth. The discussion is
technically accurate and incorporates good assumptions.
o HC (Highly Competent) – Student discusses the issue clearly and accurately and clearly
identifies where all assumptions are derived from.
David wants four main analyses in the report:
1) Investment Cash Flows (15 marks): How much is your property going to cost?
a. Choose a property and estimate its cost (3 marks)
i. Hint: MLS is a great source for this.
b. Calculate other purchase expenses (3 marks)
i. Hint: there are many expenses when purchasing a property!
c. Salvage Value: Estimate how much you will be able to sell the property for in 5 years (3
marks)
i. Hint: This should be net of any selling expenses. Selling property has many costs
d. Other investments (3 marks)
i. Are other investments required to bring your Airbnb online?
ii. Hint: People want to be feel at home when traveling.
e. Present value of capital cost allowance (CCA) tax shield (3 marks)
f. Be sure to document your data sources
2) 5 Year Pro Forma Operating Cash Flows (15 marks): You will need to forecast yearly income and
expenses for the next 5 years. Include all relevant income and expenses, including, but not
limited to:
a. Airbnb Revenue (4 marks)
b. Property Tax (2 marks)
c. Utilities (2 marks)
d. Maintenance and repair (2 marks)
e. Cleaning and other amenities (2 marks)
f. Other relevant cash flows you foresee (3 marks)
3
g. Be sure to document your data sources
3) Calculate weighted average cost of capital (40 marks):
Use the Bloomberg terminals to find the following information for 2 firms that primarily provide
accommodation to travelers (“comparables”) that have been publicly traded for at least 3
years. Hint: REITs companies are good comparables and Airbnb itself is a terrible comparable
since it doesn’t manage property of any kind.
a. Explain why the two firms you have chosen are useful comparables. (Max ? page) (2
marks)
b. Calculate amount of debt: For the 2 comparables, calculate the total long-term debt the
firms hold. (4 marks)
i. Please use market value if possible from Bloomberg
ii. If not available, please use book value
c. Calculate the market capitalization of equity for the 2 comparables. (4 marks)
d. Calculate cost of equity: Find the following information to determine the cost of equity
for the 2 comparables using the dividend discount model and the CAPM beta
i. Dividend discount model (12 marks): You need to find
1. cash dividend
2. cash dividend growth rate over the past 3 years (see the DVD menu)
3. the current stock price
4. use this information to calculate the cost of equity
a. Note: annualize the cost of equity
b. If dividends are not available, use EPS and make an assumption
for the dividend payout ratio.
ii. CAPM Model (12 marks): You need to calculate the cost of equity for both
comparables.
1. Levered stock beta: Find each comparable’s levered beta
2. Expected return on market: Use the geometric average return on the
TSX 60 Composite Index over the past 5 years.
3. Risk-free rate: Use Canadian T-bill yields
iii. Average the cost of equity from the dividend discount model and CAPM model
cost of equities for your analysis
e. Calculate cost of debt: Find the cost of an appropriate mortgage. (2 marks)
i. Most banks and credit unions post this information.
ii. Please use a fixed-rate mortgage (variable rates are difficult to forecast).
f. Use the information from a-d above to calculate the WACC for your Airbnb. (4 marks)
i. Assume that you will use an average of the debt/equity structure of your two
comparables.
ii. Assume that your cost of equity will be the average of the two comparables.
iii. Assume that your cost of debt will be your mortgage rate.
g. Be sure to document your data sources
4) Final Recommendation (30 marks)
a. Calculate the NPV of cash flows over the 5 year lifespan of the project (5 marks)
b. Would you recommend David undertake this project? Why or why not? (Max ? page) (5
marks)
c. How can you improve the NPV of this project? Explain. (Max ? page) (5 marks)
d. Corporate Social Responsibility: David would like to know what potential stakeholder
conflicts he may encounter during this project. Please outline at least 1 potential
stakeholder conflict that may occur and recommend how David may address this. (Max
page) (5 marks)
e. The overall report should be professional looking and easy to read (i.e. as if prepared for
a paying client). Your report should be clear and concise with a direct writing style, free
from grammatical and spelling errors. (10 marks)
FAQ
How can I find out how much X is?
o Try searching the internet or making a few phone calls to people who might know. Be
resourceful. Please document your source.
There aren’t enough Canadian companies that do traveller accommodation.
o You may use foreign companies as comparables.
o For simplicity, just assume that any international betas and debt yields are equivalent to
Canadian values. In FIN 3450 (International Finance) you would address the
international issues in more detail.
Does it matter if the project shows a good NPV?
o The actual end value is not the important part of the assignment--you may find that
your property is a good (or not good) investment. Just like in real-life, some investments
are not a good choice and identifying them early is very valuable.