With the assistance of a firm of management consultants the directors of Ocean Blue Hotel, a profitable
Question:
With the assistance of a firm of management consultants the directors of Ocean Blue Hotel, a profitable company in the hotel and leisure industry, are currently considering an expansion project to build a new country club and conference centre next to the existing hotel. The new complex will provide a wide range of leisure and business facilities for members, guests and the business community.
The initial investment in land, buildings and equipment is estimated at £880,000, although grant aid of 10% of this capital cost will be received in the project’s first year of operation. Annual operating costs (salaries, wages, overheads, etc.) associated with the project are estimated at £265,000 (which include depreciation of
£58,000 and an allocation of the hotel’s existing fixed overheads of
£22,000). The cost of the consultants’ report on the project was
£12,000.
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