Phuket Case
TO: General Manager of Phuket Beach Hotel
RE: Investment Consultation: Planet Karaoke Pub Vs. Beach Karaoke
The Phuket Beach Hotel faces development options in its future. Planet Karaoke Pub, a restaurant chain, has approached the hotel to obtain a 4 year lease to occupy a 3,000 square foot space. Should the Phuket Beach Hotel invest in Planet Karaoke’s proposal? Or, should the hotel develop its own karaoke business? Kornkrit and Wanida believe Group 3 is the most equipped to handle the analysis. Planet Karaoke plans to pay the Phuket hotel ฿170,000 per month for the first two years (฿2,020,000/year). The hotel will charge Planet Karaoke at a 5% increment for years 3 and 4, or ฿178,500 per month (฿2,152,000/year). The Phuket Hotel is responsible for the repair and maintenance of the facilities (i.e. toilets, elevators) and has prorated this cost over the next 4 years to be an additional ฿10,000 per year for Planet Karaoke. The total revenue over the next 4 years is estimated to be ฿8,404,000. The projected capital expenditure for the hotel is between ฿770,000 and ฿1,000,000. We will assume this expenditure is ฿885,000.
It is predicted that unwelcome guests at the Planet Karaoke Pub might deter guests from the hotel with children. 25% of patronage at the Planet Karaoke Pub is predicted to be undesirable. In this analysis, each unwelcomed guest will account for an assumed 0.75% loss in net room revenue. These losses are measured as costs per year, and the analysis assumes that the undesirable clientele is closer to 20% than 25%.This negative effect will cost ฿5,341,920 over the course of the 4 years. After depreciation and a 30% corporate tax rate on the Planet Karaoke Pub, the net income is ฿1,523,956. The Operating Cash Flow (OCF) for this project is ฿614,335 for year 1, ฿596,594 for year 2, ฿622,769 in year 3 and ฿575,258 in year 4. Please refer to table 1.1 for a more information regarding cash flows and the 4 year period.
The alternative plan is for the
RE: Investment Consultation: Planet Karaoke Pub Vs. Beach Karaoke
The Phuket Beach Hotel faces development options in its future. Planet Karaoke Pub, a restaurant chain, has approached the hotel to obtain a 4 year lease to occupy a 3,000 square foot space. Should the Phuket Beach Hotel invest in Planet Karaoke’s proposal? Or, should the hotel develop its own karaoke business? Kornkrit and Wanida believe Group 3 is the most equipped to handle the analysis. Planet Karaoke plans to pay the Phuket hotel ฿170,000 per month for the first two years (฿2,020,000/year). The hotel will charge Planet Karaoke at a 5% increment for years 3 and 4, or ฿178,500 per month (฿2,152,000/year). The Phuket Hotel is responsible for the repair and maintenance of the facilities (i.e. toilets, elevators) and has prorated this cost over the next 4 years to be an additional ฿10,000 per year for Planet Karaoke. The total revenue over the next 4 years is estimated to be ฿8,404,000. The projected capital expenditure for the hotel is between ฿770,000 and ฿1,000,000. We will assume this expenditure is ฿885,000.
It is predicted that unwelcome guests at the Planet Karaoke Pub might deter guests from the hotel with children. 25% of patronage at the Planet Karaoke Pub is predicted to be undesirable. In this analysis, each unwelcomed guest will account for an assumed 0.75% loss in net room revenue. These losses are measured as costs per year, and the analysis assumes that the undesirable clientele is closer to 20% than 25%.This negative effect will cost ฿5,341,920 over the course of the 4 years. After depreciation and a 30% corporate tax rate on the Planet Karaoke Pub, the net income is ฿1,523,956. The Operating Cash Flow (OCF) for this project is ฿614,335 for year 1, ฿596,594 for year 2, ฿622,769 in year 3 and ฿575,258 in year 4. Please refer to table 1.1 for a more information regarding cash flows and the 4 year period.
The alternative plan is for the