Phuket Beach Hotel has space located on second floor of the main building which was underutilized. Planet Karaoke pub was expanding in Thailand and looking for a venue in patong beach area for setting up another outlet. Planet Karaoke Pub found unused space of the hotel most suitable for their new venture.
The space at second floor reserved for the construction of new wing of the hotel which will take atleast two years.
Phuket Beach hotel had two options.
Option – 1 :
Planet Karaoke pub offered to sign a four year lease agreement with the hotel for renting available space and offered 1,70,000 baht for the first two years and at 5% increment for next two years.
|Assumptions | | | |Rental Income @170000*12 for first two years and 5% increase in next two years | |Straight line depreciation method | | | |Corporate tax @30% | | | |Base capital cost 1,000,000.00 | | | |Patronage factor : Reduction in room rent revenue by 10% | | | | | | |Financial Performance | | | |NPV |598,705 | | |IRR |38% | | |Payback period |Two Years | | |Average Cashflows...