Case 12-4 Wayside Inns, Inc.
1. Pro side: The proposed expansion appears to meet the firm’s stated expansion criteria; The existing inn is clearly operating at or near its practical capacity; The analysis is based on one year only, and it ignores the fact that the management and reservation fees stay within the overall firm.
Con side: The ROI is projected to decrease with the investment; The turnover count might be grossly overstated. This depends on how these data are collected. The same person could show up on the turnaway count of several reservation services; There is a risk of being hurt by either a downturn in the economy or overbuilding in the local market.
Drawing conclusions whether the proposed investment is likely to be a good one is not easy in this case. However, the pro case would appear to be more convincing over the long run.
2. As shown in Exhibit 6, a 34 percent increase in the size of the property managed would result in only a 13.7 percent increase in compensation. This would appear to be somewhat unfair. However, these data are rough calculations. I.e. the base salary is unlikely to be left untouched from one year to the next.
3. The management couples are directly responsible for such factors as the internal and external appearance of the motel, the cleanliness of the rooms and the attitude of the front desk personnel. They also have some influence over direct costs, administrative and financial costs, and over the volume of business. Therefore the Performance Evaluation Report could be argued to be included as one of the determinants of compensation.
The regional general manager has a key role and this might raise the anxiety level of the management couples. To ensure some uniformity of evaluation techniques across the various inns, a travelling inspector could for example be employed to periodically check such things as room cleanliness etc.
A ROI-based system is naturally unfair since it is tied to an historical cost...
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