Create a 5 year capital budget using the information in theOffsite Catering Proposal.pdf. The file should be done in Word format and should include a description of how you derived your figures and what assumptions you made to reach your conclusions.

Your analysis should address the following items:

• Applicable depreciation of various assets using MACRS based on the types of assets.
• A forecast of change in revenues and contribution margin.

Use the assumptions below in your analysis.

• Revenues at both properties are expected to increase by 3% annually.
• Contribution margins at both properties are expected to increase by 4% annually.
• 35% Ordinary Tax Rate
• 15% Capital Gains Tax Rate
• 12% Discount Rate
• $5K in additional working capital will be needed over the duration of the 5 years and will be returned at the end of the 5th year.

HGI Off-Site Catering Proposal Executive Summary Purpose The purpose of this analysis is to determine the viability and anticipated profitability of HGI delivery of off-site catering to other Woodbury hotels including the Springhill, Hampton and Residence Inn. As the Springhill has the most meeting space and is likely to drive the most revenue, it will be the focus of this analysis. Approach There are numerous variables that effect the decision of whether or not to implement an offsite catering program. This analysis will explore: first, the benefits and concerns voiced by several individuals at both properties and above property; second, the logistics needed to carry out off-site catering for both the HGI and the Springhill; and last, the anticipated incremental annual profit that is expected by each property. Recommendation Although there are substantial concerns associated with implementing an off-site catering program we feel that none of these cannot be overcome or mitigated. Therefore, given the high anticipated incremental profit and relatively low upfront costs, it is our recommendation to develop and implement the off-site catering program. Next Steps In order to proceed forward we will need to: Receive the blessing of Guy, Scott and Sandy. Receive approval for needed capital expenditures and purchase needed equipment. Finalize accounting procedures, particularly those regarding the tip-out of employees from different properties. Publish off-site catering menu. Schedule a series of meetings between applicable management of the two properties to finalize logistical details. 1|Page Benefits HGI Additional revenue Increased profitability Better client retention Springhill More referrals from HGI Additional revenue Increased profitability More appealing food and beverage offerings for groups Improved quality of food Experienced/reliable execution Staffing savings Immediate referral business Concerns HGI (Concern/Solution) We do not have equipment necessary to maintain and transport food between locations. o Purchase serving equipment to be stored on property at the Springhill (plates, glasses, flatware, chafers, carving stations, serving utensils). o Use large capacity ice chests to transport food (holds both hot and cold food, easy to transport with dolly, cheap). o Purchase and outfit a van for picking up orders and transporting food to and from catered location. o Increase smallwares capacity at HGI to handle increased food production and service (full pans, salad bowls, etc). Could possibly jeopardize HGI performance by running two events simultaneously. o Use a simplified menu that requires less last minute preparation, staffing and careful handling of food. Because a substantial amount of the business at the Springhill is anticipated to come from referrals from the HGI, both properties are likely to have simultaneous events on a recurring basis (when it is busy it will be really busy). o Use a simplified menu that requires less last minute preparation, staffing and careful handling of food. o Have staff members that are cross trained in multiple areas and flexible with hours. Butting heads with Springhill staff over expectations: scheduling, revenue allocation, misplaced equipment, inaccurate or incomplete BEO's, lack of communication/updates from sales coordinator, quarreling over tips. 2|Page o Have clearly defined expectations over responsibilities and hold parties accountable in fulfillment of such responsibilities. Share same equipment as little as possible; when sharing is necessary, use a check out list. Providing referred guests with the same experience that they would have at the HGI. o Springhill has a flexible banquet captain and the remaining staff is provided by the HGI. o Specifics of the events will be carefully worked out in advance between Springhill sales coordinator and HGI event manager. Not enough capacity to handle two large concurrent series of events (i.e. BLY here and Rio Tinto there for an entire week) - Oven capacity and cold storage. o Utilize evening banquet cook shifts for advance preparations. o Increase staffing so only Tim or Matt is needed for routine events. o Identify key cooks that can be relied on to execute smaller events. (Anastacio) o Remove beverages from roll-in reach-in to increase cold storage capacity. Purchase half pan combi-oven. Increase order frequency to 3 times per week. Availability of key contacts during events between properties (Can we get ahold of the sales coordinator during an event?). o Establish a policy that management cell phones must be on and managers must be available on-call during off-site events. Large reliability on the banquet captain to have all set up properly for the event. o Thorough training and effective communication between properties needs to be a priority. Have banquet captain train at our property or hire one of our key banquet people (Maribel?). Increased responsibilities of HGI managers would expect some form of compensation. o Review impact and adjust compensation if necessary. Provide an incentive on an event basis (Executive Chef: Tips -- Event Specialist: Commission). Pricing discrepancies (HGI does not discount the menu - if Springhill does we could be competing with ourselves and losing revenue). o Match menu pricing, discount room only. If large groups are moved match the group room rate. Continuity of the program amidst ongoing changes in management and staff. o Create systems to facilitate long-term execution. o Groom individuals within the HGI F&B program to fulfill key positions of responsibilities. o Ensure several individuals are trained in off-site catering. Springhill (Concern/Solution) Timeliness and reliability of HGI staff. o Create a meeting room forecast sheet for the Springhill that is posted each week at the HGI to ensure awareness of meetings. Streamline off-site catering processes including execution schedules and checklists to ensure preparation and delivery are done in the appropriate time. Create a culture of openness between the two properties to encourage constructive feedback and promote a positive long-term relationship. 3|Page Not being treated as top priority. o Consistently communicate as a management team that both properties have equal importance. Because a substantial amount of the business at the Springhill is anticipated to come from referrals from the HGI, both properties are likely to have simultaneous events on a recurring basis (when it is busy it will be really busy). o Ensure HGI is properly staffed. o Change preparation mentality: Currently we prepare most food the same day. Given our increased volume, independent of the offsite program, we need to start better coordinating the preparation and move several tasks to the evening before. Butting heads with HGI staff over expectations: scheduling, revenue allocation, misplaced equipment, inaccurate or incomplete BEO's, lack of communication/updates from sales coordinator, quarreling over tips. o Have clearly defined expectations over responsibilities and hold parties accountable in fulfillment of such responsibilities. Share same equipment as little as possible; when sharing is necessary, use a check out list. Not enough capacity to handle two large concurrent series of events (i.e. BLY at HGI and Rio Tinto here for an entire week) - Oven capacity and cold storage. o Utilize evening banquet cook shifts for advance preparations. o Increase staffing so only Tim or Matt is present for routine events. o Identify key cooks that can be relied on to execute smaller events. (Anastacio) o Remove beverages from roll-in reach-in to increase cold storage capacity. Purchase half pan combi-oven. Increase order frequency to 3 times per week. Availability of key contacts during events between properties (Can we get ahold of the executive chef and event manager during an event?). o Establish a policy that management cell phones must be on and managers must be available on-call during off-site events. Large reliability on the banquet captain to have all set up properly for the event. o Thorough training and effective communication between properties needs to be a priority. Have banquet captain train at our property or hire one of our key banquet people (Maribel?). Stuck with a caterer that is fairly pricy - May not meet needs of target market clientele. o Have a second caterer available for lower cost events. Logistics Menu We have reviewed the menu extensively and identified certain items that will not transport well. We will create an off-site catering menu that is free of any references to the Hilton Garden Inn and includes only those items that will hold up well to transportation. Due to the nature of 4|Page certain menu items, some preparation will likely have to be done off property to ensure quality product and presentation. Staffing We have considered many staffing models. We believe the most effective to be the following: The Springhill hires, schedules and compensates a banquet captain to handle smaller events and events without food and beverage served. The banquet captain would also be responsible for directing the staff for larger events. The remaining staff would be shared between properties. The Springhill would either hire a part-time event coordinator or have the sales coordinator absorb the responsibilities. The relationship between our event manager and this individual will be discussed in greater detail in a later section. Scheduling and Compensation The HGI would schedule and compensate all servers other than the Springhill banquet captain. Tips could also be handled several different ways. Being that Springhill will be recognizing the full revenue they will determine the amount of service charge and handle the tip allocation for all employees both at the HGI and the Springhill. Transparency in tip out would be essential for both management teams but should not be communicated with employees. We would recommend using a version of our tip out spreadsheet to determine the employee payout. To be determined is the manner in which the tips are paid out and coded. Training Staff It would be ideal that a key member of the HGI banquet service staff be moved to the Springhill to fulfill the responsibilities of banquet captain. This would greatly facilitate the transition to catering offsite at the Springhill and would increase the likelihood of maintaining service levels at each property. Because the remaining staff would be provided by the HGI, training would be held at the HGI. By utilizing the shared staff model we increase the expertise, ability and qualification of the staff because they work more events. We also lower labor costs caused by training and lack of economies of scale. Other costs may be lower such as uniform expense if we are able to use the same uniforms. Maintenance at the Springhill may also prove useful in helping with setups and teardowns. Event Manager Coordination of Responsibilities Booking o Referral bookings coming from the HGI should be transitioned to the event coordinator or sales coordinator at the Springhill as soon as possible. In many circumstances dialogue will need to be maintained to ensure successful transition and execution. Pricing/Negotiations o Because both properties are offering a similar product, it would be essential that we do not compete directly with one another on the basis of price. Discounting should be limited to room rental only. 5|Page o The HGI will charge 80% of menu pricing. The remaining 20% will be retained by the Springhill. Following up with BEO o The event coordinator or sales coordinator at the Springhill will work with the event manager from the HGI to ensure repeat HGI clients moved to the Springhill are properly accommodated and that expectations are met before BEO is sent to client. o Once booked pertinent BEO shall be sent to the Hilton Garden Inn. Any time an update is made a new BEO shall be sent with a summary of the changes. BEOs need to be finalized by the Thursday morning the week prior to any events. This is imperative as schedules and food orders are made on Thursday. o Before pop-ups are booked that have food, the Event Manager at the HGI shall be contacted to ensure we can fulfill the requirements of the pop-up. o Any changes in guest count or food offerings should be communicated as soon as possible. If such changes are within the 72-hour guarantee period, approval from the HGI to proceed forward with changes shall be requested. Meeting to discuss details o Effective communication is essential in maintaining a successful relationship and event success. Continuous communication should be performed via emails and phone calls to relay important updates in a timely manner. o We suggest that the event coordinator or sales coordinator from the Springhill calls in to our weekly F&B meeting to discuss upcoming banquet details and discuss pertinent issues. Billing o The HGI will bill the Springhill for 80% of all applicable food and beverage charges. The Springhill will create final bills that include full food and beverage charges, AV & equipment, room rental, service charges, taxes and any other miscellaneous charges. o The HGI will send out a bill for food and beverage charges within one business day of the event. Client Retention o An effort should be made to solicit feedback from main contacts by each of the event managers to ensure satisfaction and react with needed service recovery. Sleeping rooms o Routine groups moved to the Springhill from the HGI should be given the same rate offered by the HGI to prevent competing directly with one another on the basis of price. The exception to this would be if their normal corporate rate offered to the company is lower or if they are selling at a BAR lower than the HGI group rate. An effort should be made to match the HGI rate as much as possible. 6|Page Profitability Analysis Approach In order to accurately assess the overall financial benefit of the off-site catering program we must include only the incremental benefits and costs related with implementing the offsite catering program. Therefore only revenues that are retained within the organization that would otherwise be lost in the absence of such a program will be considered and only costs that could wholly be avoided were the program not to be implemented will be included. For the sake of simplification, only off-site catering to the Springhill Suites will be considered in this analysis. Up-Front Costs Below is an estimation of the materials needed by the HGI to provide off-site catering services at other properties. The figures in the cost analysis are estimations. Upon request a more thorough bid can be completed that would increase the accuracy of this analysis. In this analysis we have included the cost of a van along with annual insurance. It is questionable whether or not to include the cost of the van for two reasons. First, it may make perfect operational sense to purchase the van independent of the decision of whether or not to provide off-site catering for picking up COSTCO orders; second, the van may come from an internal source such as the Radisson where no actual expense would be incurred. One could argue that in the event we procure the van from the Radisson this would still represent a substantial opportunity cost as they could certainly sell it for a profit. Another item worth mentioning is the need for additional oven space. We are currently operating at maximum capacity with our ovens. Independent of whether we cater off-site or not it would be our strong recommendation that additional oven capacity be added; the off-site catering would only strengthen this need. 7|Page Equipment Electric Skillets 6" Full Pans 4" Full Pans 2" Full Pans Metal Full Pan Lids Misc. Smallwares 6" Plastic Hotel Pans Plastic Hotel Pan Lids Fry Dady Ice Chests Butane Stoves Non-Stick Pans Dolly Van Thermometer Black Sheet Trays Black Salad Bowls Carving Station (Springhill Buy) 5 Gallon Cambro Glass/Ceramic bowls Bases for chef station Bases for carving station 18/10SS round serving platter Combi Oven Use Est Unit Cost Quantity Ext Cost Breakfast food $40 3 $120 Transport/Service $35 4 $140 Transport/Service $30 15 $450 Transport/Service $25 10 $250 Transport/Service $15 25 $375 Preparation $300 Holding food $25 15 $375 Holding food $15 15 $225 Appetizers $40 2 $80 Holding food $100 4 $400 Chef Stations $30 4 $120 Chef Stations $12 10 $120 Carry Ice Chests $50 1 $50 Transport $6,000 1 $6,000 Food Safety $80 2 $160 Trayed Food $55 4 $220 Salad/Bread $20 5 $100 Carving Station $400 2 $800 Juices/Gravy $30 3 $90 Dressings, Sides $10 20 $200 Prop up butane burners $40 2 $80 Prop up carving stations $40 2 $80 Appetizers $80 4 $320 Cooking Food $11,055 Annual Fixed Costs Below is the annual fixed cost breakdown based on 3 and 5 year straight-line depreciation. Total Expected up front costs 3 Year depreciation 5 Year Depreciation (Van) Van Insurance Annual Fixed Costs $11,055 $1,685 $1,200 $2,000 $4,885 Increased Referral Revenue Below is an analysis of the anticipated increased revenues to both the HGI and the Springhill as a result of the HGI referring and catering groups to/at the Springhill. This revenue benefit comes from the incremental increase in group retention. 8|Page Displaced events per month Average Revenue per Event Current Retention Rate Anticipated Retention Rate Expected Monthly Increased Retention Expected Yearly Increased Retention Portion in Food Food Revenues (Springhill) Portion of food revenue expensed by HGI Food Revenues (HGI) Total Net Revenue (Springhill) 8 $2,000 30% 70% $6,400 $76,800 70% $53,760 80% $43,008 $33,792 HGI Variable Costs Analysis Below is the variable cost analysis for the HGI. These costs are higher than our normal cost because we typically measure the costs as a % of total food revenue. Consequently, as we are only charging the Springhill 80% of the total revenue all typical costs have been divided by 80%. Thus food cost changes from 30% to 38%, labor changes from 14% to 18% and other expenses changes from 10% to 13%. Variable Costs (HGI) Food Revenue Discount Food Cost Labor Other Expenses 80% 38% 18% 13% 68% Springhill Variable Costs Analysis Below is the variable cost analysis for the Springhill. The costs were based on an average event where $2,000 in revenue was collected over 2 meal periods, a single server worked a 10 hour shift and earned $8.00 per hour + 10% cost of wages to cover benefits and 40 people used 80 napkins and 17 tablecloths expensed at our current contracted rate. An additional $50 was expensed to cover other room related expenses. Food expense will be considered in the next section. Average Springhill Event Revenue Labor Linen Other Expenses Average Inhouse Expense Expense % (total revenue) $2,000 $88 $32 $50 $170 8% Incremental Benefit to the Springhill Below is a summary of the incremental benefit that the Springhill is expected to receive by having the HGI refer and cater business to them. 9|Page Total Referred Revenue Food Expense (HGI) Internal Expenses Profit from referred business $76,800 $43,008 $6,524 $27,268 Incremental Benefit to the HGI This analysis is based on the assumption that the Springhill will be able to produce 100K in revenue without any referral business. The benefit to the HGI is based on only 70% of the revenue coming from food, the HGI only is expected to cater 80% of the events where food is present and the HGI only bills the Springhill for 80% of the food revenue. The resulting figure is the HGI revenue originated at the Springhill. That combined with the amount they expense to the Springhill in food cost is combined to create the total revenue for the HGI. Total Revenue originated at Springhill $100,000 Portion in Food Revenue 70% Portion catered by HGI 80% Portion of food revenue expensed by HGI 80% HGI Revenue originated at Springhill $44,800 Net Reffered Revenue (expensed to Springhill) $43,008 Total Revenue $87,808 Estimated Variable Expenses $59,270 Fixed Expenses $4,885 Total Incremental Profit $23,653 Sensitivity Analysis Retention Rate There are many unknowns in this calculation. We are estimating the events displaced per month because we do not have concrete information for this and our current retention rates with the Courtyard. The sensitivity analysis below assumes we will be able to achieve a 70% retention rate but changes the current retention rate and the total events displaced per month. 10 | P a g e $50,920 10% 20% 30% 40% 50% 5 $48,343 $41,898 $35,453 $29,009 $22,564 Events Displaced per Month 6 7 8 9 $56,076 $63,810 $71,543 $79,277 $48,343 $54,787 $61,232 $67,676 $40,609 $45,765 $50,920 $56,076 $32,876 $36,742 $40,609 $44,476 $25,142 $27,720 $30,298 $32,876 10 $87,010 $74,121 $61,232 $48,343 $35,453