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Clara

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5

Investment Decision Case

Hi All,

Been thinking of the following case question and I would appreciate your feedback.

"Company X wants to invest in building a hotel if payback period is X years or less, should they invest?"

My structure is the following:

"since payback period is the investment divided by annual profits we need to look at the following;

1- Investment costs

2- Running cost (after building hotel)

3- Revenue streams and demand ( rooms, resturants, spa, etc)

4- Market & compition (not sure if I should concider this as a bucket or not) "

I would appreciate feedback on my structure and suggestions too. I don't know if my buckets are concidered a bit detailed?

Hi All,

Been thinking of the following case question and I would appreciate your feedback.

"Company X wants to invest in building a hotel if payback period is X years or less, should they invest?"

My structure is the following:

"since payback period is the investment divided by annual profits we need to look at the following;

1- Investment costs

2- Running cost (after building hotel)

3- Revenue streams and demand ( rooms, resturants, spa, etc)

4- Market & compition (not sure if I should concider this as a bucket or not) "

I would appreciate feedback on my structure and suggestions too. I don't know if my buckets are concidered a bit detailed?

(edited)

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Book a coaching with Clara

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Hello!

Sounds pretty good and comprehensive!

The only advise I would give you is also review the NPV formula in perpetuity vs. the "normal" one we normally use, since if you see that in an interview for the 1st time, I am sure it can be pretty confusing.

Hope it helps!

Cheers,

Clara

Hello!

Sounds pretty good and comprehensive!

The only advise I would give you is also review the NPV formula in perpetuity vs. the "normal" one we normally use, since if you see that in an interview for the 1st time, I am sure it can be pretty confusing.

Hope it helps!

Cheers,

Clara

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Hi there,

This is correct. Just remember to talk through each of your buckets with the why and how.

I.e. what are you going to actually do with investment and running costs? (calculate the NPV) What will you do with revenue streams and demand? (compare to costs to see if there's a good ROI). What do you care about with bucket #4 (figure out if this investment is the best one compared to alternatives, and better understand competitive response that may change the equations of buckets 1,2, and 3

Hi there,

This is correct. Just remember to talk through each of your buckets with the why and how.

I.e. what are you going to actually do with investment and running costs? (calculate the NPV) What will you do with revenue streams and demand? (compare to costs to see if there's a good ROI). What do you care about with bucket #4 (figure out if this investment is the best one compared to alternatives, and better understand competitive response that may change the equations of buckets 1,2, and 3

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This makes perfect sense. Note that the first 3 are the mathematical components of the payback period. You can use the fourth one to estimate e.g. the revenue and the variable costs, so it's more a sub-driver of 2 and 3.

I would start with the first three and list a few examples of how you plan to estimate revenue and costs. One component could be benchmarking against competitors, another could be market outook & trends.

Hope this helps

This makes perfect sense. Note that the first 3 are the mathematical components of the payback period. You can use the fourth one to estimate e.g. the revenue and the variable costs, so it's more a sub-driver of 2 and 3.

I would start with the first three and list a few examples of how you plan to estimate revenue and costs. One component could be benchmarking against competitors, another could be market outook & trends.

Hope this helps

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Yes, very good structure.

You must consider #4! Also, not sure if its relevant or in scope for the case, but COVID can impact your revenue stream.

Yes, very good structure.

You must consider #4! Also, not sure if its relevant or in scope for the case, but COVID can impact your revenue stream.

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