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CAPITAL BUDGETING CASE STUDY: Bridgehampton Shores Inn: Mutually Exclusive Project Comparison Finance 203 – Managerial Finance Dr. Anoop Rai Fall 2012 Capital Budgeting Case Study: Bridgehampton Shores Inn: Mutually Exclusive Spa Projects Introduction Bridgehampton Shores is an Inn located on the Eastern Inn of Long Island. It typically caters to families looking to vacation in the area and take advantage of all the East End has to offer. Currently, Bridgehampton Shores Inn has 10,000 square feet of available space for lease. Potentially, 1/5 of the available space will be used to build a pathway for connection purposes to their existing facilities and the remaining 4/5 …show more content…

Finally, in order to complete a more accurate comparison between the two projects, we utilized the EANPV as the deciding factor. Under current accepted financial practice, NPV is generally considered the most accurate method of predicting the performance of a potential project. The duration of the projects is different, one lasts four years and one lasts six years. To account for the variation in time frames for the projects and to further refine our selection we calculated the EANPV to compare performance on a yearly basis. One additional factor to consider was the cost of capital. Based on the information provided, Bridgehampton has enough cash on hand to finance the projects without seeking outside capital. As such we utilized both Jim’s and Isabel’s projected discount rates to assess the projects. In addition, we wanted to consider the affect obtaining outside capital would have on the project. The percentage of debt for Bridgehampton is currently 30% and the equity is 70%. Therefore we calculated the weighted average cost of capital and also used that rate to assess the projects. Since both projects are Spa’s we assumed there would be a similar risk profile assigned and use of the WACC as assessment tool would be warranted. Conversely, It seems that both the Suncoast lease and the internal Bridgehampton spa are non-typical projects for Bridgehampton and this could affect the accuracy of using

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