Calculate the net present value of the external membership

Assignment Help Managerial Accounting
Reference no: EM131297057

Assessment Brief:

1. Groups of 2 - 3 people should be created for this assessment. This assessment should be prepared as a group. Each student needs to submit the same version of the documents for marking. The members of the group need to be clearly stated in the Business Report.

2. 2 files have to be submitted, the Excel Workbook including calculations and the Business Report summarising the tasks and recommendations. All the calculations should be done in Excel and only the final tables should be included in the report.

3. You should include a reference list to any textbooks, websites or other resources used to prepare the answers including references to suppliers that the costing was based on.

Rose Garden Hotel Case Study

TASK 1

As part of the Wellness Centre Project, the plan is to build a small gym on the rooftop of the hotel. You have been appointed to help the Sales and Marketing manager to make decision whether to rent or buy specific equipment items. The required items are included in Appendix 1 together with costing information.

The budget for the required equipment is $45,000 for the life of the equipment. The useful life of the equipment is predicted to be 3 years after which it will need to be replaced. At the end of its useful life, it is expected to be sold for the residual value of 5% of its original cost. From the renting options, choose the one that is the most beneficial for the business. The rent is expected to rise by 3% each year. The rent is paid at the beginning of each period. Servicing of the equipment is included in the rent price.

Assume that servicing its own equipment will cost the hotel additional $600 every year over the period of its useful life. Assume that servicing is done at the end of each year. Ignore GST for the purpose of this assessment task.

REQUIRED

The manager would like to know whether it would be better for the Hotel to buy the required equipment or to rent it. Explore both options and make a recommendation. Take into account the time value of money at the discount rate of 8%. Base your decision on the total cost of the specified equipment, not on an item by item basis.

All calculations are to be done in Excel. Summarise your findings in the business report. Include advantages and disadvantages of each option and explain your choice.

TASK 2

The Sales and Marketing Manager has an idea of creating monthly memberships for external visitors that he would like to explore further. He is thinking to create two types of membership options. A Basic Membership which would include access to the gym, sauna and pool and it would cost clients $39 a week. A Full Package Membership would additionally to the access include a one hour weekly session with the in house personal trainer and a dietician consultation once a month. Clients would pay $80 per week for this type of membership.

He believes that an initial investment into promoting the centre would be $35,000 and subsequent cost of continuous promotion would be $800 a month. At the beginning he would like to make the service more exclusive and cap the membership to 20 basic membership clients and 30 full package membership clients. He wants to create a feeling of exclusivity amongst the clients.

Based on his calculations he believes offering the membership to the external clients would generate total revenue of $130,000 in the first year increasing by 10% every year after that. The in-house trainer is expected to cost the hotel $5500 a month and the services of dietician additional $1500 and both are expected to increase by 3% each year.

REQUIRED
Calculate the net present value of the external membership project over the next 3 years period. Use yearly basis for your calculations. The estimated cost of capital for the hotel is 8%. Assume 30% company tax in Australia when determining the values of the after tax net cash flow for each year.

Based on your analysis would you recommend accepting the project and offer the membership to the external clients? Explain the basis for your recommendation.

TASK 3

Once the Rose Garden Hotel Wellness Centre is ready for opening, it will need to be promoted to existing and potential new clients. There is already an opening event (luncheon) planned which is handled by the Functions and Events Department. The overall budget for promoting the opening of the centre is $35,000. The opening luncheon is budgeted to cost $20,000.
Your team has been appointed to plan additional promotional activities for the remaining
$15,000. The budget is aimed for the promotion of the opening of the centre only. Continuous promotional activities as well as online advertising will be handled separately.
Initial research has been done by the marketing team and the promotional activities to be considered are listed in the Appendix 3. Negotiated pricing has been included as well.

REQUIRED
Your task is to choose suitable promotional activities from the list provided to you and create a promotional budget for the Rose Garden Hotel Wellness Centre opening. Use the budget template provided in the excel file and adjust it as appropriate. Use Excel formulas to calculate your values. The final budget is to be included in the business report as well.

TASK 1

As part of the refurbishment project, the Rose Garden Hotel would like to introduce fresh plants into the lobby area, function and conference rooms. The management has however dilemma on whether to hire a professional company that will deliver the plants and maintain them or whether to purchase the plants themselves and hire a gardener for the maintenance of the plants. It is estimated that the plants would need to be replaced every three years. From experience, contracting a gardener to take care of the plants would cost the hotel $250 a week. For simplification purposes assume the gardener's invoice is paid at the end of each year.

The list of the required plants together with costing is included in the Appendix 2 of this document. The hiring contract requires payment at the beginning of the year for the full year.

REQUIRED

Compare the two options and make recommendation to the Hotel on whether to hire or purchase the plants. Take into account the time value of money at the discount rate of 8%. All calculations are to be done in Excel and summarised in the Business Report as well. Include advantages and disadvantages of each option and explain your choice.

TASK 2

As part of the improvement process, the hotel would like to invest into an event management software package which would help to manage the events side of the business. The hotel found a suitable software supplier they are happy with. The software package will significantly improve event management through streamlining processes and decreasing the time spent on booking and quoting events. As a result of the capital investment, an increased revenue and higher efficiency is expected regardless of the type of financing of the software package. The expected useful life of the software package is three years.

Two payment options have been offered to the hotel. The first option is to pay a one-off licence fee of $6,180 and an upgrade fee of $300 a year increasing by 3% every year. The second option is a subscription fee of $150 per month increasing by 3% each year.

REQUIRED

Compare the two options of financing the software package over the expected useful life of the software. Make a recommendation on which option is financially better for the Hotel. Provide explanation for your recommendation. All calculations are required to be made on yearly basis. Take into account the time value of money and the estimated cost of capital of 8% p.a.

TASK 3

As part of the promoting the Rose Garden Wellness Centre, your team has been appointed to help to organise the Rose Garden Hotel Wellness Centre Opening Luncheon. The hotel is expecting 300 guests to attend the event. Your team has been given a list of resources that need to be outsourced which is included in the Appendix 4 of this document. The food and beverages will be provided by the Hotel Restaurant and the price is included in your list.

Casual staff will be hired by the hotel at the rate given to you in the Appendix 4. The Audio Visual System and Staging are provided internally and do not need to be budgeted for.

The rest of the required items will need to be outsourced. You are expected to find suitable suppliers online and to complete the event costing. In terms of the entertainment, your team needs to choose an appropriate supplier for this type of event.

The gift hampers are to be given to the hotel's long term corporate clients. Additionally, every visitor will receive a small promotional gift. While the event is planned to last for three hours, the chair covers are required to be hired for 5 hours in total. The overall budget for the resources listed is $20,000.

REQUIRED

Your task is to do an online search of appropriate suppliers in order to complete the event costing. All calculations need to be included in the Excel Workbook and the summary of the costing provided in the Business Report as well. Provide references to the sources of the quotes and prices you have based the costing on. All costing has to be done from online resources without contacting suppliers directly as this task is purely for the assessment purposes. Links to the supplies used need to be provided as part of the reference list.

Attachment:- case study.rar

Verified Expert

In administering business or corporate, Cost is very important to determine the profit in the business. but also cost should not be considered in the determining the profit at the end of the financial year. Use of good organizational structure, promotions, advertising and marketing of the business bring much more and adds to the profit and loss statement.

Reference no: EM131297057

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Reviews

inf1297057

12/12/2016 6:53:12 AM

Thank-you such a great amount for making such a superb showing with regards to composing this paper. I am truly content with the way you composed the diverse subjects. Is there a path for me to ask for your services later on? Do you have ranges that you work in? Would love to use your aptitudes once more. Much appreciated and keep doing awesome!

len1297057

12/1/2016 5:56:43 AM

Hello - I have attached two files one xml and another with instructions. Please leave out the group part as I am on my own so make the assignment as one person person. My name is Colin Tieppo a student at Torrens University Australia.

len1297057

12/1/2016 5:55:22 AM

Excellent knowledge and practical application of the concepts covered in this task. Students applied the time value of money correctly, provided all formulas in Excel. The recommendation regarding buy vs rent option has been correct and included detailed explanation supported by the analysis. (8) Task 1 Excellent knowledge and practical application of the concepts covered in this task. Students applied the time value of money correctly, provided all formulas in Excel. The recommendation regarding the project is correct has been supported by facts and explained in detail. (8) Task 2 Students have chosen appropriate promotional activities or event suppliers. Correct quantities were applied and appropriate costing or budget provided. Students were in line with the financial constrains given to them. All required references have been provided. All Excel formulas have been provided with no mistakes in calculations. (8)

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