Finance and Financial Management Commons^™

Cost Of Capital For Small Size Tourism Industry In Developing Countries: The Case Of Lodging Sector In Chile, Sergio Zuniga-Jara, Karla Soria-Barreto

Journal of Hospitality Financial Management

This paper provides a simplified approach toward estimating the cost of capital for a small company of the tourism sector. This is accomplished by dividing the hurdle rate into the return of the specific industry in a specific country, and a specific risk premium dependent on the size and age of the company/projects. We illustrate our proposal with investment estimations in lodging accommodations along the northern coast of Chile where tourism represents an important source of income and jobs. The estimations were validated through a survey carried out among entrepreneurs of the sector. The results suggest that our method is …