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Assignment 2Step 7Services provided by Millennium Copthorne hotels are :ServicesPriceVariable costContribution MarginContribution Margin RatioStandard Room$180$105$7541.6%Superior room$250$180$7028%Club Room$300$200$10033.3%Why would the contribution margin for each product be similar or different?So, I decided to take different variable cost because Millennium hotels provide three different types of room that is standard Room, superior room and club room. So, in different room , different services are provided for instance in standard room wifi is complementary, in Superior room breakfast is complementary and in club room breakfast and dinner is complementary also there is access to lounge. So, there may be different different because of which contribution Margin differs. However, price of the room is also different based on the type of room so contribution Margin for all three services is different.Why might your firm produce a range of products/services with different contribution margins? Millennium Copthorne hotels deals with different customers who want different types of room and other different services. To able to satisfy every customers need Millennium hotel provide different types of services and rooms. Moreover, A firm should not just rely on one product with the highest contribution margin as that may result in relying on one type of market and restricting their market output, as the demand for that one product may run out. A firm has to compete with other firms which sells similar products.Resource constraints that the firm may face?Resource constraint that Millennium hotel can face may be shortage of labour or shortage of rooms. Market constraints that the firm may face?While reading the annual report I found that market constraint online booking. Hotel has to pay special attention towards the people who book rooms online and pay online. They have to manage their online customer. Other market constraints that hotel may face is competition by other hotels or new technology.How might these constraints be relevant when deciding which (and how much) of the three products should produce and sell?The market constraints would be relevant as it would help determine which services should be provided more of, which would also help determine where their resources should go. Company should watch that which type of room services are demanded more and according to that they should manage their resources.Step 8As I started calculated ratios the first thing I found that I was not able to find ordinary shares of my company. After some research I found that I went to next step. After calculating Net profit margin for the company I realised that company had a huge down fall after 2016 as Net profit margin directly fell from 56% to 6, it was very shocking. Return on Asset was just 1% in that year. I was really shocked to see current ratio of the company. Current ration if the company was negative from last four years. Even debt equity ratio of the company was negative. While calculating ratios we can know the position of the company and about the financial obligations or profits earned by the firm in several years. It helps to plan the future budgets, investments and it also helps to know the pitfalls of previous planning. By calculating ratios we can compare different companies growth and managers also need ratios to compare last year growth with recent year.Economic ProfitThe leading factors for the economic profit for Millennium Copthorne were return on net operating assets and NOA. When calculating the economic profit for my firm I used the 10% for the Weighted Average Cost of Capital (WACC) as I could not identify the cost of capital within Millennium Copthorne annual reports. While analysing restatements I found that operating income of the company was much better in Year 2014 and 2016 as compared to Year 2015 and 2017. Net operating assets can be seen increasing but it has slightly decreased in 2017 result of which we can see as decreased economic profit in 2016 as compared to 2016Step 9Millennium hotels are planning to open their one more hotel, so they have two options that is open a hotel in India or in Dubai.All the values are expressed in Millions €Hotel in IndiaCumulativecash flowHotel in DubaiCumulativecash flowOriginal Cost? 75-79?98-98Estimated Future Cash flow1st Year4-71-10-1082nd Year8-63-5-1133rd Year 16-4710-1034th Year18-2915-885th Year 19-1018-706th Year251518-527th Year294420-328th Year30-29th Year3331Investing in IndiaNPV : ? 0.35IRR : 10.1%Payback Period :6 Years Investing in DubaiNPV : ? - 33.87IRR : 3.8 %Payback Period : 9 YearsAfter looking at the above analyses of the two options, the best decision for Millennium Copthorne would be to open hotel in India. This is because it has a lower initial cost and also it has yielded better results for the payback period, IRR and NPV.NPV for investing in Dubai is negative whereas NPV is positive for investment in India, this indicates that if the company invests in first option(hotel in India) they may get better return as compare to other project.Option one has a greater percentage return on the amount invested, as shown by the IRR figures. If the future cash flow figures are accurate, option one would yield a return of 10.1%. Option one(India )has a shorted payback period of 6 years compared to 9 years. Therefore, opening a new hotel in India will be a good decision for company as the return rate, payback period and net present value shows that this would be best option to choose for company. ................
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