Finance Case
CAPITAL BUDGETING CASE STUDY:
Bridgehampton Shores Inn:
Mutually Exclusive Project Comparison
Finance 203 – Managerial Finance
Dr. Anoop Rai Fall 2012
Capital Budgeting Case Study:
Bridgehampton Shores Inn: Mutually Exclusive Spa Projects
Introduction
Bridgehampton Shores is an Inn located on the Eastern Inn of Long Island. It typically caters to families looking to vacation in the area and take advantage of all the East End has to offer. Currently, Bridgehampton Shores Inn has 10,000 square feet of available space for lease. Potentially, 1/5 of the available space will be used to build a pathway for connection purposes to their existing facilities and the remaining 4/5 may be rented to a third party. Suncoast Spa, a Californian based company who is currently expanding in the Northeast offers to lease the unused property from Bridgehampton for 4 years. Under the terms of the lease, Bridgehampton will be responsible for the capital expenditure needed to make the space suitable for leasing. Suncoast will be responsible for any other renovation costs required for their operation plus all the other utilities and operating expenses.
Theoretically the proposed lease seems like a positive proposition for Bridgehampton. However, Marie O’Donnell, Bridgehampton’s General Manager has seen similar proposals rejected by the board in the past. Working with Jim Naruda, the Financial Controller, they discuss an alternate plan to develop a Spa internally. Jim suggests that the opportunity is ripe to expand into the Spa business as the East End has become a sought after destination all year round and not just during the summer season. They decide to conduct an analysis to determine if it would be more beneficial to build a Spa themselves or lease the space to Suncoast.
The following report summarizes and clarifies the comparison and makes a recommendation as to which course of action to follow. The report
Bridgehampton Shores Inn:
Mutually Exclusive Project Comparison
Finance 203 – Managerial Finance
Dr. Anoop Rai Fall 2012
Capital Budgeting Case Study:
Bridgehampton Shores Inn: Mutually Exclusive Spa Projects
Introduction
Bridgehampton Shores is an Inn located on the Eastern Inn of Long Island. It typically caters to families looking to vacation in the area and take advantage of all the East End has to offer. Currently, Bridgehampton Shores Inn has 10,000 square feet of available space for lease. Potentially, 1/5 of the available space will be used to build a pathway for connection purposes to their existing facilities and the remaining 4/5 may be rented to a third party. Suncoast Spa, a Californian based company who is currently expanding in the Northeast offers to lease the unused property from Bridgehampton for 4 years. Under the terms of the lease, Bridgehampton will be responsible for the capital expenditure needed to make the space suitable for leasing. Suncoast will be responsible for any other renovation costs required for their operation plus all the other utilities and operating expenses.
Theoretically the proposed lease seems like a positive proposition for Bridgehampton. However, Marie O’Donnell, Bridgehampton’s General Manager has seen similar proposals rejected by the board in the past. Working with Jim Naruda, the Financial Controller, they discuss an alternate plan to develop a Spa internally. Jim suggests that the opportunity is ripe to expand into the Spa business as the East End has become a sought after destination all year round and not just during the summer season. They decide to conduct an analysis to determine if it would be more beneficial to build a Spa themselves or lease the space to Suncoast.
The following report summarizes and clarifies the comparison and makes a recommendation as to which course of action to follow. The report