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Category: Business and Industry
Date Submitted: 01/20/2013 03:05 AM
Addendum
Coral Divers
A. Revenue Potential and Return on Investment
Considering, the incremental return on investment, or the additional revenue generated from each resource profile investment. Each of the strategies has financial costs and benefits. These are discussed below.
1) Ten per cent increase through efficiency
The efficiency improvement strategy carries no costs and should yield 10 per cent on the bottom line, or about an additional $12,100 profit.
The calculations are:
$550,000 annual revenue x 2% margin = $11,000 net profits
$11,000 net profit x 10% efficiency improvement = $1,100
$11,000 + 1,100 = $12,100 increase in net profits
2) Add adventure diving
The adventure diving resort strategy will require about $15,000 to get started. It should yield about $95,680 additional revenue.
The calculations are:
8 divers per trip x $115 for each diver = $920 revenue per trip
$920 each trip x 2 dives per week - $1,840 revenue per week
$1,840 revenue per week x 52 weeks = $95,680 annual adventure diving revenue
3) Focus on family diving
The family diving resort strategy will cost $60,000 to $160,000 (in renovations and improvements) and should yield at least an additional $157,000 over current revenues, assuming no increases in prices. If Coral Divers raises its prices to equal other family resorts, the revenues should be even higher. Two methods of calculation are shown below.
Method 1:
Occupancy during high season is 90 per cent, so:
90% (“x”) = 0.90x [where “x” equals total seasonal revenue]
And occupancy during low season is 50 per cent, so:
50% (“x”) = 0.50x [where “x” equals total seasonal revenue]
To calculate how additional revenue could be realized if occupancy rate during low season rose to 90 per cent (as Rascals claims), we calculate:
0.90x + 0.50x = $550,000 current annual revenue
1.40x = $550,000
x = $392,800
Therefore, the unfilled potential...