Answered: Figure 1: Location Map of Various…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter5: Network Models

Section5.3: Assignment Models

Problem 11P

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Three independent valuers engaged by Toh had valued Parcels 19 and 24 between $95M to $100M. However, being astute and business-savvy, Toh would like to sell the parcel of land for at least 10% above $100M (the highest valuation) or $110M. She felt that there would be several serious bidders who would likely compete for the land parcel and bid up the price. One of the serious bidders was the Beh Medical Group (BMG). The founder and CEO was Mr. Beh (herein known as Beh). He foresaw strong customer demand for a hospital in CHP and would like to acquire Parcels 19 and 24 to develop it into a hospital. He had a vision of setting up more hospitals in aging precincts to offer best in class hospital treatments at very affordable rates to serve the growing pool of ageing citizens in the country. Beh had been sourcing for a suitable site for six months ever since he committed to other key BMG investors/shareholders to develop a new hospital within three to four years. Beh had set aside some cash on hand to fund the design and construction of the hospital. He would also need to secure additional bank financing for the land parcel. After consulting with his Finance Director, he figured out that the maximum amount he was willing to pay for Parcels 19 and 24 was $100M. He considered another available land site further south of CHP. It was reasonably priced at $90M and was the same size as Parcels 19 and 24. However, Beh preferred Parcels 19 and 24 due to its integrated facilities and amenities, such as the Nursing Home and Nursing Training Institute. The Nursing Training Institute could also train qualified nurses to work in BMG’s proposed hospital. Toh and Beh have met each other on three occasions while viewing the amenities at CHP and negotiating for Parcels 19 and 24. However, both parties adopted the contending mode of managing conflicts. They could not agree on the final price for the land parcel.

Toh was confident and quite vocal in selling Parcels 19 and 24 to influence potential buyers to bid more for the plot of land. It was an attractive site for commercial use. She reminded potential buyers how RD had forged excellent partnerships with renowned companies, government bodies, etc. This resulted in the high footfall at the various amenities. Beh told Toh that he was only prepared to pay close to the market valuation for Parcels 19 and 24. BMG would have to spend a huge sum of money to demolish the existing buildings and construct a new hospital from scratch. Beh told Toh that his own reputable valuer had given him a valuation report for Parcels 19 and 24. His reasonable offer of $80M to Toh was very close to that valuation. Beh was careful not to disclose the source and valuation to increase his information power. His valuer, Knight Frank, valued both parcels at $90M. Beh used this $90M amount as his reference price for negotiation. BMG Uncovered Issues BMG uncovered a few issues with respect to the land area. However, Beh did not tell Toh about this at their first three meetings. Firstly, Parcels 19 and 24 have limited space, yet the local government had a key requirement that the winning bidder for the land must apply for the use of the land (hospital preferred) and must maximise the number of hospital rooms. Hence, there was no space to build car parks for the medical staff. The only solution was that 80 medical staff with cars park outside Parcels 19 and 24. It would be a long 20-minute walk to the hospital from the car park for them. Secondly, Beh would like to retain School Building 24 and perform minor renovations to save costs. Some classrooms could be adapted for hospital use. However, he would need detailed information on the existing school buildings on the land parcel and material used to confirm his construction and renovation plan and cost. Furthermore, Beh discovered that the Private School’s older Building, Number 19, was constructed in 1985 and its roofs contained asbestos. Building 24 was built in 2000 and was constructed without the use of asbestos. It would cost at least $500,000 to properly remove and dispose of all the toxic asbestos in the roof ceilings of Building 19. To secure a bank loan of around $90M to purchase Parcels 19 and 24, Beh would need critical information from Toh to develop a business plan with sales projection, etc., and present it to his banks. For example, CHP’s masterplan, detailed profile of its residents and visitors, etc. He was very keen to sign the purchase agreement with RD in the next few months so that the hospital could be built in three to five years.

Question 1 (a) Based on the above case, analyse the resistance, target and opening points for both Toh and Beh. Examine the zone of potential agreement (ZOPA) if there was one. Support your answers with your analysis and assumptions and explanation

Figure 1: Location Map of Various Buildings in the Caring Heights Precinct (CHP)
10
16
25
20000
18
24
19
20
NORTH
Building 1 housed a massive ten-storey car park which had spare capacity.
Building 2 housed a theatre.
Buildings 3, 13, 17 and 23 housed a Megamall.
Buildings 9, 12 and 18 housed the National Museum.
Buildings 4 and 20 belong to a large condominium.
Buildings 5, 7 and 8 housed a huge Nursing Home.
Building 6 housed a Nursing Training Institute.
Buildings 10 and 11 housed a Community Library.
Building 14 housed a Fire Station.
Building 15 housed a Community Club.
Building 16 housed shower facilities for the users of the nearby Soccer Field.
Buildings 19 and 24 housed a Private School catering to students aged 7 to 18 years old.
Building 21 housed a Science Center.
Building 22 housed a 5-star Hotel.
Building 25 housed a Community Sports Stadium.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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