In estimating the appropriate capitalization rate to the subject, consideration was given to the risk involved in this type of venture, the difficulty in completing a project of this type which results in a substantially larger entrepreneur's profit to the developer, the extremely heavy cash flows vs. costs, the substantial equity return on this type of project, and the demand for hotel/casino projects. The capitalization rate utilized in this report is based upon the rate extracted from actual sales and/or offers of hotel/casino facilities in Clark County known by this appraiser. However, exact information on these sales and/or offers cannot be revealed since this information was given this appraiser in confidence. Generally speaking, however, the range in the capitalization rate on sales has been from 12%,to 23% with the preponderance of weight being between 18% and 20%. A 19% overall capitalization rate was utilized in estimating the market value of the subject if completed and in complete operation and under good management.

While this rate is substantially above that normally realized in the real estate market, the rate considers again the risk involved and the extremely heavy cash flow on projects similar to the subject.

The following is a summary to the Income Approach to value which sets forth the gross income estimate divided into slot income estimate, table income estimate, room income estimate, food income estimate, beverage income estimate, and miscellaneous income. The summary sets forth expenses including cost of goods sold, expenses to the gaming department, expenses to the food department, expenses to the beverage department, expenses to the hotel or room department and the operating expenses. The total expenses are deducted from the gross income estimate to arrive at a net income estimate which is divided by the capitalization rate for an indication of value by the Income Approach.

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