Decision Analysis Assume for Requiriment 9 that Jacic's relevant analysis reveals that Superior would earn a. positive relevant profit of $500,000 from the special-order. However, after conducting this traditional, short-term analysis, lack wonders whether it might be more profitable over the long term to downsize the company by reducing its service capacity [i.e, its total guest room night capacity). He is aware that downsizing requires a multyear time horizon because companies usually cannot increase or decrease fixed assets (such as properties) wery year: Therefore. Jack has decided to use as 5 -year time horizon in his long-term decision analysis He. has identified the following information regarding capacity downsizing: - Superior Stay Resorts consists of many luxurious properties (i.e., hotels). If it chooses to downsize its capacity, Superion can immediately sell a set of properties for \$1.275.000. - Also, if it chooses to downsize its capacity Superior's annual property lease and insurance cost will decrease from $4,500,000 to $4,200,000. Therefore, Jack must choose between the following two alternatives: (1) Accept the special-order offer each year and earn a 5500.000 relevant profit for each of the next 5 years (i.e, the ongoing special-order alternative), or (2) Reject the special-order offer and downsize as described above (Le., the downsizing alternative). 9. Assume that Superior pays for all costs with cash. Also, assume that a 10% discount rate, a 5-year time horizon, and all cash flows occur at the end of the year. Using an NPV approach to discount future cash fiows to present value a. Create a model that calculates the NPV of accepting the rpecial-order offer with the assumed positive relevant profit of 5500.000 per year (Le., the special-order offer alternative). b. Create a model that calculates the NPV of downsizing copacity as previously described (L.e. the downsiring alternative). c. Based on the NPV outputs of the models you created for Requirements 9a and 9b. identify and explain which of these two alternatives is best for Superior to pursue in Decision Analysis Assume for Requiriment 9 that Jacic's relevant analysis reveals that Superior would earn a. positive relevant profit of $500,000 from the special-order. However, after conducting this traditional, short-term analysis, lack wonders whether it might be more profitable over the long term to downsize the company by reducing its service capacity [i.e, its total guest room night capacity). He is aware that downsizing requires a multyear time horizon because companies usually cannot increase or decrease fixed assets (such as properties) wery year: Therefore. Jack has decided to use as 5 -year time horizon in his long-term decision analysis He. has identified the following information regarding capacity downsizing: - Superior Stay Resorts consists of many luxurious properties (i.e., hotels). If it chooses to downsize its capacity, Superion can immediately sell a set of properties for \$1.275.000. - Also, if it chooses to downsize its capacity Superior's annual property lease and insurance cost will decrease from $4,500,000 to $4,200,000. Therefore, Jack must choose between the following two alternatives: (1) Accept the special-order offer each year and earn a 5500.000 relevant profit for each of the next 5 years (i.e, the ongoing special-order alternative), or (2) Reject the special-order offer and downsize as described above (Le., the downsizing alternative). 9. Assume that Superior pays for all costs with cash. Also, assume that a 10% discount rate, a 5-year time horizon, and all cash flows occur at the end of the year. Using an NPV approach to discount future cash fiows to present value a. Create a model that calculates the NPV of accepting the rpecial-order offer with the assumed positive relevant profit of 5500.000 per year (Le., the special-order offer alternative). b. Create a model that calculates the NPV of downsizing copacity as previously described (L.e. the downsiring alternative). c. Based on the NPV outputs of the models you created for Requirements 9a and 9b. identify and explain which of these two alternatives is best for Superior to pursue in
