I am doing the stardust canyon ski resort. I am needing to figure out the fixed and variables for this

Stardust Canyon Ski Resort

You work for a venture capitalist and have been asked to analyze a proposal from a group of

investors interested in building a new ski area in Colorado, the Stardust Canyon Ski Resort. The

demand for skiing is growing. Existing ski resorts have raised prices and reported record profits

for the last two seasons. Stardust Canyon$$s business strategy is to offer the ultimate ski

experience $$ short lift lines, uncongested ski slopes and spectacular scenery. With a $2500-$foot

vertical drop, $10$ trails, and a single triple $($three person$)$ ski lift, it can provide a very

uncongested ski resort. The resort will have a triple$-$person ski lift. The planned triple$-$person

ski lift delivers a chair every $20$ seconds, $180$ chairs per hour $(3$ chairs per minute X $60$ minutes

per hour$),$ or $540$ skiers per hour $(180$ chairs per hour X $3$ skiers per chair$).$ This puts an average

of only $54$ skiers per hour on each of the $10$ trails. Some trails will be more popular than others,

but this average number of skiers per trail per hour is still below industry average.

The cost to build the ski runs, parking lots, and buildings and to erect the chair lift is $$52$ million.

To raise this amount of capital requires an annual financing cost $($debt service$*$ and dividends$)$

of $$8\mathrm{.}3$ million. The annual fixed operating cost $($land lease, utilities, labor, taxes, insurance$)$ of

the ski resort is projected to be $$4\mathrm{.}1$ million. For each $100$ skiers per day, additional employees

must be hired to staff the ticket office, ski patrol, parking lots and so forth. The daily cost of the

additional labor is $$200$ per $100$ skiers per day.

The typical skier makes two ski runs per day $($uses the lift twice$).$ Ski resorts operate their lifts $8$

hours per day, $120$ days per year. Stardust Mountain plans to sell one$-$day lift tickets for $$60$

per skier per day: No season passes will be offered. "tilize and excel spreadsheet to complete the assignment.

$1$

$.$

$$Identify the Fixed and Variable costs in this case

$($

list the cost name, the amounts, and the total of fixed cost and total for variable costs

$)$

$.$

$($

Note for costs, you will use cash flows and not expenses

$$

$$in other words, you will not need to compute depreciation

since you will just need to focus on cash flows. Note that debt service includes principal and interest. The principle payment is a close approximation of the depreciation and therefore you will not need to compute depreciation

$)$

$.$

$2$

$.$

$$Assuming each skier utilizes the chair lift twice a day

$($

as stated in the case

$)$

$,$

$$how many skier days are needed to break

$-$

even?

$($

be sure to clearly show your computations and label your numbers

$)$

$.$

$($

Note that you MUST use cell formulas. A user should be able to utilize your spreadsheet using

$$

what

$-$

if

$$

$$analysis and have your spreadsheet automatically compute the answer. For example, if I change one of the variables,

$($

revenue per skier for example

$)$

$$your spreadsheet should show a new break

$-$

even amount

$)$

$.$

$3$

$.$

$$Maximum cash flow and Return on Investment

a

$)$

$$Compute the maximum yearly cash flow possible for the ski resort based upon

the information given for capacity.

b

$)$

$$Based upon the maximum cash flow, compute the annual return on the initial

investment.

$($

use the cash flow for your return

$)$

$.$

$4$

$.$

$$Identify what additional information you need beyond what is provided by the case.

$($

I

have had people actually get some of the additional information by providing their own research and apply it to the case. You will receive extra credit commensurate to the usefulness of this research if you include it

$.$

$$You must supply reference links or a copy of the research.

$)$

$5$

$.$

$$Recommendation

$-$

$$Your analysis will be given to the venture capitalists. You will recommend one of three actions. In this section, make sure that you are referring to the facts in the previous section.

$1$

$.$

$$Aggressively pursue the investment

$($

YOU MUST SUPPORT THIS RECOMMENDATION

WITH DATA FROM THE CASE OR YOUR RESEARCH!

$)$

$2$

$.$

$$Gather more information

$($

if you choose this one, you need to be specific on what

$$

more information

$$

$$you should gather and how the information obtained would impact your decision

$)$

$($

YOU MUST SUPPORT THIS RECOMMENDATION WITH DATA FROM THE CASE OR YOUR RESEARCH!

$)$

$3$

$.$

$$Reject proposa

$($

YOU MUST SUPPORT THIS RECOMMENDATION WITH DATA FROM THE CASE OR YOUR RESEARCH!