Sensitivity Exercise: Your customer operates a hotel with a small water park in Fargo. The water park is operated in a separate entity than the hotel, with revenues from hotel guests and outside users, and the owners reported the results below for the water park in 2023. A new competing water park will open in 2024, so the management would like to assess the impact of a 25% decline in customer visits at the 2023 average spend rate per visit. Alternatively, they feel they may be able to keep the same number of clients by dropping their average price by 35%. Calculate the impact of each of these changes individually, as well as the potential gross revenue figure if both of these events should occur at the same time. # of customer visits (per year) Average customer spend per visit Gross Revenues 2023 Results 13,650 $20 $273,000 25% Drop in Visits $20 35% Drop in Prices 13,650 Combined Impact

Sensitivity Exercise: Your customer operates a hotel with a small water park in Fargo. The water park is operated in a separate entity than the hotel, with revenues from hotel guests and outside users, and the owners reported the results below for the water park in 2023. A new competing water park will open in 2024, so the management would like to assess the impact of a 25% decline in customer visits at the 2023 average spend rate per visit. Alternatively, they feel they may be able to keep the same number of clients by dropping their average price by 35%. Calculate the impact of each of these changes individually, as well as the potential gross revenue figure if both of these events should occur at the same time. # of customer visits (per year) Average customer spend per visit Gross Revenues 2023 Results 13,650 $20 $273,000 25% Drop in Visits $20 35% Drop in Prices 13,650 Combined Impact

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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A distribution company is considering three different alternatives to satisfy their customer's demands. Their options are to rent a ready distribution center (D01), Rent and mobilize a center (D02), or outsourcing (OS). The estimate for each method is shown. The lifetime for D01, D02, and OS are 3, 6, and 2 respectively. MARR is 0.04 per year. and the percentage of change for all of the cases are 0 % Note: all units are in thousand $ D01 D02 OS First Cost, $ -136 -973 0 Annual Operation Cost,$ -92 -59 -123 Salvage Value,$ 28 333 0 a: Calculate the Fw of D01? b) Calculate FW for D02 c )What is the FW for outsourcing? d: Which alternative will be selected? f: Draw the cash flow for all of these three alternatives. If contract value with subcontractor increases by 15 % every year calculate FW for Outsourcing. Is there any change in your previous decision on the basis of the new condition? If yes, which…
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