Sensitivity Exercise: Your customer operates a hotel with a small water park in Fargo. The water park is operated in a separate entity than the hotel, with revenues from hotel guests and outside users, and the owners reported the results below for the water park in 2023. A new competing water park will open in 2024, so the management would like to assess the impact of a 25% decline in customer visits at the 2023 average spend rate per visit. Alternatively, they feel they may be able to keep the same number of clients by dropping their average price by 35%. Calculate the impact of each of these changes individually, as well as the potential gross revenue figure if both of these events should occur at the same time. # of customer visits (per year) Average customer spend per visit Gross Revenues 2023 Results 13,650 $20 $273,000 25% Drop in Visits $20 35% Drop in Prices 13,650 Combined Impact
Sensitivity Exercise: Your customer operates a hotel with a small water park in Fargo. The water park is operated in a separate entity than the hotel, with revenues from hotel guests and outside users, and the owners reported the results below for the water park in 2023. A new competing water park will open in 2024, so the management would like to assess the impact of a 25% decline in customer visits at the 2023 average spend rate per visit. Alternatively, they feel they may be able to keep the same number of clients by dropping their average price by 35%. Calculate the impact of each of these changes individually, as well as the potential gross revenue figure if both of these events should occur at the same time. # of customer visits (per year) Average customer spend per visit Gross Revenues 2023 Results 13,650 $20 $273,000 25% Drop in Visits $20 35% Drop in Prices 13,650 Combined Impact
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Sensitivity Exercise:
Your customer operates a hotel with a small water park in Fargo. The water park is operated in a separate entity than the hotel, with revenues from hotel
guests and outside users, and the owners reported the results below for the water park in 2023. A new competing water park will open in 2024, so the
management would like to assess the impact of a 25% decline in customer visits at the 2023 average spend rate per visit. Alternatively, they feel they may
be able to keep the same number of clients by dropping their average price by 35%. Calculate the impact of each of these changes individually, as well as
the potential gross revenue figure if both of these events should occur at the same time.
# of customer visits (per year)
Average customer spend per visit
Gross Revenues
2023 Results
13,650
$20
$273,000
25% Drop in Visits
$20
35% Drop in Prices
13,650
Combined Impact
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