(I) Selection of Valuation Methods

Based on the provisions of the Asset Appraisal Standards, the enterprise value appraisal can be carried out using three methods: the income approach, the market approach, and the asset-based approach. The income approach is the quantification and present value of the expected profitability of the enterprise's overall assets, emphasizing the overall expected profitability of the enterprise. The market approach is to evaluate the current fair market value of the valuation object with reference to the real market, which is characterized by valuation data taken directly from the market and persuasive valuation results. The asset-based approach refers to the idea of determining the value of the subject of valuation on the basis of a reasonable assessment of the value of the assets and liabilities of the enterprise.

The purpose of this appraisal is the transfer of equity, and in view of the transaction situation in the domestic market, there are fewer cases of the same type of transaction on the appraisal reference date, and it is therefore difficult to obtain a number of recent similar cases of transaction that can be used as a comparison, and the conditions for the use of the market approach to appraisal are restricted, so the market approach is not adopted.

The appraised entity's historical operation was unsatisfactory and has been in the red, and started to make profit in the past two years. However, due to the long period of time since the establishment of the grand hotel operated by the appraised entity, the recent large-scale renewal of renovation and fixed assets by the lessor and the lessee, the annual leasing fee has risen massively to RMB 16.8 million per annum, and the leasing term is from 1 January 2012 to 31 December 2013, which is the same as that for the other two years of the appraised entity. December 31, 2013, the largest cost in the operating cost of the enterprise is the leasing expense, because the leasing party is the lessee's shareholder, and the rent has changed greatly in the past 3 years, there is a great uncertainty in the future rent forecast, so the income method is not applicable.

The asset-based method reflects the value of the enterprise from the perspective of enterprise purchase and construction, and provides a basis for the management and assessment of the enterprise after the realization of the economic behavior, therefore, the asset-based method is selected for this appraisal. In summary, this appraisal has determined that the asset-based approach is adopted for the appraisal.