Investment and Dry Dock

Topics: Investment, Profit, Financial ratios Pages: 4 (836 words) Published: December 30, 2013
Introduction
Due to a recent terrorist attack on a Dutch cruise ship, the cruise industry is currently facing an economic downturn with overall bookings expected to drop by 50-55% in the next six months, and 30-35% over the next year. As requested by the Coast4Life Board of Directors, this report will analyze 4 recommendations proposed to maintain profitability through the downturn, and ensure that the recommendations provided meet the 16% after-tax required rate of return mandated by Coast4Life. Identification of Issues

1.Cost of $3 million to repair the Costal Native for the 2013 summer 2.Unnecessary costs associated with third party booking fees 3.Lagging technology, such as no online booking platform, and customer tracking database 4.High employee turnover, and low utilization of dry dock resulting in layoffs 5.Debt-to-equity of 1.2326 (Appendix A) will result in high interest costs during a period of lower financial productivity Analysis of Alternatives Proposed

Alternative 1 proposed is that Coast4Life divest their dry-dock business. This may be a viable option for the company for many reasons. In past years the dock has struggled to operate at full capacity during the summer months resulting in layoffs, creating high employee turnover. Divesting the dock addresses the stated weakness of employee turnover. The divestiture in year one will have an overall financial gain of $513,360 (Appendix B). On the contrary, divesting the dock will ignore opportunities such as: growth of the tourism industry in Canada, growth of the cruise industry in Vancouver, and the strengthening economy of Canada. Divesting the dry dock will not take advantage of the strong location of the facility, and the convenience of having crew, passengers and head office all in a close geographic region. Lastly, quality of maintenance is a risk that comes with outsourcing, and that risk comes at a fixed cost of $2,000,000 annually. Alternative 2 is that Coast4Life targets a new...
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