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What exactly am I supposed to do when asked conduct a break even analysis of a mall or a feasibility analysis of a mall

Richa asked on Oct 04, 2018 - 2 answers
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Benjamin updated his answer on Oct 04, 2018
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HI,

that's pretty direct :

1. Evaluate the cost (fixed and variable) to build and run the mall. Probably function of the number of square meter built

2. Evaluate the revenue model. In case of a mall, I assume revenue are maily generated from rental of floor space to stores and brands

3. Calculate break even. In this case it would be to evaluate the number of square meter to rent at price detailed in 2. to cover the cost described in 1.

Let me know if you need more details.
Best
Benjamin

(edited)

Francesco
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updated his answer on Oct 04, 2018
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Hi Khushi,

in terms of break-even analysis, you are supposed to calculate the volume that will allow reaching a level of revenues equal to total costs. The formula to derive the value of the volume is given by fixed costs divided by the contribution margin.

Specifically, the formula would be the following

R-VC-FC=0

p*q-c*q-FC=0

q=FC/(p-c)

where p=price, q=quantity, c=variable cost per unit, FC=fixed cost

Feasibility analysis is a bit more generic term that should be clarified with the interviewer to be aligned on the exact meaning in the context of the case. In general terms, it means to verify that the project is feasible both from a technical point of view and from a point of view of minimum return expected by the client.

Hope this helps,

Francesco

(edited)

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