Action Pan for Super 8 Motel-Guelph Case Study Solution
introduction
The owner of Wood lawn Hospitality Group is offered to sell one of its motels located in Guelph, Super 8 Motel in $2.9 million. It is a 36-room motel located in the Northwest of Guelph and in the junction of highway 6 and 7.
Action Plan:
Accepting the baseline, the occupancy rate is forecasted for the next ten years by taking an average of the previous rates. It is kept constant for the next ten years by taking into account the inconsistent nature of the business.
While forecasting the average daily rate (ADR) the inflation rate is taken into account. As per mentioned in the case study it is increased by 3% every year.
Estimation of Motel:
According to the rule of thumb, a hotel is sold in between 2 to 4 times of the total revenue generated that year. The offer made of $2.9 million is quite good. The offered price is a little more than the average mark, and it is made at almost 3.3 times of the revenues generated in 2006. If we estimate the value of motel on the basis of the rule of thumb, the offered price should be in between $1.7 million to $3.5 million.
Forecast of the revenues generated for the next 10 years:
The forecasting done for the upcoming 10 years is done on the basis of this assumption that the motel will work in such a way that it would reflect the performance of past years. Therefore an average is taken of the past data provided for the total rooms available, total rooms used at night and occupancy rate. Then throughout the next 10 years the value is kept constant. The average daily rate is affected by inflation. And as mentioned in the case study an increase of 3% per annum is expected in inflation rate. Therefore ADR is forecasted considering the increase in inflation.
Examining the demand of motel from year 2002 to 2006, it is clear that the level of occupancy increased in 2003, declined in 2004, then rose again in 2005. It is hard to predict what might happen next year because of all the ups and downs and inconsistent nature of the business. Therefore, it is a wise decision to forecast the data for the upcoming years by taking the average of the past year results.
Optimistic Model:
Accepting the Baseline calculations, and keeping in mind the news of opening of 3 new motels in the same area that can become the cause of loss in business in the future, it can be seen that the revenues generated annually are increasing gradually. It can be stated that it is an optimistic scenario as the valuation for motel in future is above average. And on selling the motel, the owner would come across a loss of $1.2 million.
Action Pan for Super 8 Motel-Guelph Harvard Case Solution & Analysis
Recommendation:
Though 60% of the source of income for Super 8 Motel arethe walk in clients, and only 30% book the rooms in advance. The average stay of a client is far low in comparison to other hotels in the city. But my recommendation would be to not sell the hotel due to the following reasons......................
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