Earnings before Interest and Taxes and Refer Appendix

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COAST4LIFE INC
Memorandum
To :Coast4life Inc
From: Pat Brown, CMA
Subject: Options for Cost savings and revenue generation

Introduction: Coast4life Inc with the expected downturn situation due to recent terrorist attack on a cruise ship in 2012 and on airline industry would prepare to remain profitable by finding ways to cut cost or generate additional revenue. Target is to recommend the best among the four alternative as directed and aiming at 16% after tax return and tax rate of 38%.
Identification of Issues and related alternatives:
• Debt to Equity Ratio of 1.23 more than 1 reveals that more than half of assets are financed by debt.
• $3.6 million required for repairs of hull before 2013.
• Gross profit of 60% has not increased much over past three years it will affect operating income if there is a decline in sales.
• Operating profit of .23% in 2012 seems to decline from 2011 of .26% implies company earns less per dollar of sales.
• Accounts Receivable of 2.6 days in 2012 increased as compared to 2.3 days in 2011 .Should re-assess credit policies to ensure timely collection.
• Return on equity is not growing at an increasing rate as compared to growth of 2010 to 2011 company will grow less towards downturn.
Alternative 1: Divesting the dry dock
Pros
• Savings on expenses amounting to $5,674,000
Cons:
• Unavoidable maintenance cost of $2 million for each ship
• Damage relationship with government, employees and city
• Lost contribution to the overall profitability of the company.
• Negative cash inflow of $1,172,000.00(Appendix 2)
• Not supported by manager of dry docks.
Alternative 2: Targeting a more profitable market segment
Pros:
• Offers unique services and special amenities
• Good skilled hospitality staffs and Captains
• Passengers less than 40 are more compared to industry standards.

Cons:
• Extremely find hard to provide relevant information of customers
• Does not include background of ships crews

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