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PHUKET

BEACH
HOTEL
VALUING MUTUALLY
EXCLUSIVE CAPITAL
PROJECTS
CASE
BACKGROUND​

 Phuket Beach Hotel has unused space


and considered using it for 2 project choices :​
 4 years lease renting agreement with
Planet Karaoke Pub​
 Build Beach Karaoke Pub, 6
years construction project owned by hotel​
CASE DETAILS  The estimated Beach Karaoke total sales
amounting to 4.672.000 baht and 5% sales
growth per annum
 The estimated Planet Karaoke rental Fee
amounting to 170.000 baht / month for
the first 2 years, 5% increment for next two
years
 The 25% fear factor is applied

 The weighted average cost of capital is 10.75%


NET ROOM REVENUES

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6

13.200.000 13.464.000 14.137.000 14.844.000 15.140.000 15.443.000


ASSUMPTIONS
Initial Investment

Planet Karaoke Pub Beach Karaoke Pub

 Renovation Cost : 770k – 1000k  Renovation Cost : 800k – 1200k


baht​ baht​
 Repair & Maintenance Cost : 10k  Other Capital Investment : 900k
baht p.a (inc. Rental fee)​ baht​
 Sunk Cost : 55k baht  Repair & Maintenance Cost : 10k
baht p.a
 Sunk Cost : 55k baht
ASSUMPTIONS
Operating Costs
 Food & Beverage costs : 25% of sales

 Salaries : 16% of sales

 Other operating expenses : 22% of sales

 Depreciation : equipments & furnitures depreciated equally over the life of the
project using the straight line method, with zero salvage value at the end​
 Annual Capital Expenditure : Equal Depreciation​
DEPRECIATIONS
OPERATING CASHFLOW - PLANET

323.750 300.650 313.612 251.300

341.000 317.900 330.412 268.550


OPERATING CASHFLOW - BEACH

656.312 719.878 751.989 785.675 860.102 938.932

676.312 739.878 771.989 805.675 880.102 958.932


PAYBACK PERIOD
Planet Karaoke Pub Beach Karaoke Pub
PAYBACK PERIOD
Planet Karaoke Pub Beach Karaoke Pub

Upper Limit 3.04 Years Upper Limit 2.89 Years

Lower Limit 2.46 Years Lower Limit 2.43 Years


DISCOUNTED PAYBACK PERIOD
Planet Karaoke Pub Beach Karaoke Pub
DISCOUNTED PAYBACK PERIOD
Planet Karaoke Pub Beach Karaoke Pub

Upper Limit 4 Years Upper Limit 3.59 Years

Lower Limit 3.01 Years Lower Limit 2.94 Years


RETURN ON INVESTMENT
Planet Karaoke Pub Beach Karaoke Pub
RETURN ON INVESTMENT
Planet Karaoke Pub Beach Karaoke Pub

ROI Upper Limit 1.61% ROI Upper Limit 5.42%

ROI Lower Limit 3.40% ROI Lower Limit 7.38%


IRR AND MIRR
Internal Rate Return (IRR)

is an indicator of the level of efficiency of an investment, where a project


can be run if the rate of return is greater than other project / other
investment.​

Modified Internal Rate Return​ (MIRR)

The Modified Internal Rate of Return (MIRR) method assumes that


positive cash flow will be reinvested in the company's capital costs and
the initial outlay is financed by company financing. Conversely, the rate
of return Internal Rate of Return (IRR) only assumes cash flow from a
project is reinvested in the IRR itself.
PROFITABLITY INDEX
The profitability index is an index that attempts to identify
the relationship between the costs and benefits of a
proposed project through the use of a ratio calculated as :

PV of Future Cash Flow


Initial Investment
IRR AND MIRR PLANET KARAOKE PUB

PI Lower Limit 1.21

IRR Lower Limit 20.78% MIRR Lower Limit 16.26%

PI Lower Limit 0.99

IRR Upper Limit 10.21% MIRR Upper Limit 10.44%


IRR AND MIRR BEACH KARAOKE PUB

PI Lower Limit 1.93

IRR Lower Limit 36.95% MIRR Lower Limit 23.57%

PI Lower Limit 1.60

IRR Upper Limit 28.46% MIRR Upper Limit 19.81%


SENSITIVITY ANALYSIS OF MIRR
In general, both
projects can be run
because the MIRR
value is still positive
even after entering the
element of cost of
capital (WACC)

However, when
compared, the Beach
Karaoke Pub project is
potentially more
profitable than Planet
Karaoke
NET PRESENT VALUE - PLANET

NPV Upper Limit (11.179)


NET PRESENT VALUE - PLANET

NPV Lower Limit 165.017


NET PRESENT VALUE - BEACH

NPV Upper Limit 1.265.602


NET PRESENT VALUE - BEACH

NPV Lower Limit 1.580.378


EQUIVALENT ANNUAL ANNUITIES (EAA)
SENSITIVITY ANALYSIS OF NPV
SENSITIVITY ANALYSIS OF NPV
SENSITIVITY ANALYSIS OF NPV
RISKS

 PROJECT RISK
 HUMAN RESOURCE RISK
 MONETARY RISK
 MARKETING RISK
 PRODUCTION RISK
 SECURITY RISK
 FORCE MAJEURE
OPPORTUNITY & SUNK COST

 Salaries

 Sales Declining
Year 1 2 3 4 5 6
Risk Factor (25%) (1.650.000,00) (1.683.000,00) (1.767.125,00) (1.855.500,00) (1.892.500,00) (1.930.375,00)

 Maintenance Cost
IMPORTANT ASPECTS
 MAIN SERVICE

 SUPPORTING SERVICE

 EXTERIOR DESIGN

 INTERIOR DESIGN
RECOMMENDATION

 Phuket Beach Hotel build its own Karaoke, Beach Karaoke


Pub
 Great opportunity in karaoke Industry

 Organic Business Development

 Inorganic Business Development


THANK YOU