Phuket Beach Case

1683 Words7 Pages
PHUKET BEACH HOTEL: VALUING MUTUALLY EXCLUSIVE PROJECTS I. STATEMENT OF THE PROBLEM This is an assessment of the different costs and benefits of two mutually exclusive capital projects involving the use of an underutilized space located on the second floor of the main building of Phuket Beach Hotel (PBH). The first project, Planet Karaoke Pub (PKP) offered to sign a four-year lease agreement with (PBH) while the second project, Beach Karaoke Pub (BKP), is a pub the PBH itself, plans to put up and to operate for six years. PKP proposed to pay a monthly rental of 170,000 baht for the first two years with a 5 % increment for the next two years. Renovation costs for PKP ranged between 770,000 and 1,000,000 baht. PKP will be charged…show more content…
On these bases, Karaoke Beach Pub with total investment of 1,700,000 baht ranked first. While the average ROI and Payback Period disregard the time value of money, these criteria do not provide an accurate future projection of the investment. Similarly, Karaoke Beach Pub ranked first in terms of IRR and NPV. Evaluation using IRR might have multiple values and assumes that interim cash flows can be reinvested at the IRR, which may not be as accurate as desired. Using NPV for project evaluations can show actual economic gain with respect to the time value of money. However, it is not appropriate for comparing projects with different lifetimes. Thus, the four criteria are still not sufficient to arrive at a conclusion. Using the NPV as a criterion alone, Planet Karaoke Bar with investment
Get Access