Eagle’s Nest Hotel Investment Case Analysis

Eagle’s Nest Hotel Investment Case Analysis – Executive Summary

Eagle’s Nest Hotel Inc. is a successful US hotel chain based on the West Coast, which operates hotel both internationally as well as in the USA. In the wake of increasingly fierce competition, it is now seeking to expand its business. 125 million US dollars have been allocated by the Executive Directors of this company for the initial investment with the possibility of further finds if the venture is successful. However, due to the regulation announced by Federal Equal Opportunities Bureau, the company will spend more than 50 million US dollars on related improvements and constructions. Therefore, only 75 million US dollars will be available for this new venture.

This investment case is written to analyse the details about three suggested investment ideas for all of the Eagle’s Nest Hotel’s Executive Directors. The three investment ideas evaluated in the investment case are providing extra services in 15 existing 4-star hotels in the USA, setting up the company’s official website and building theme hotels in both the USA and Europe. After the evaluation, the best recommended for the company is providing extra services in 15 existing 4-star hotels in the USA.

Introduction

The purpose of this investment case is to analyse the three suggested investment ideas with detailed data and then recommend the best one to Eagle’s Nest Hotel Inc.

This investment case is aimed at all of the Executive Directors in the company’s board. And the audience group will also include other stakeholders who will influence or be influenced by the expansion of Eagle’s Nest Hotel Inc.

In this investment case, three ideas will be described with details at first. Then there will be evaluations about them in relating with the company’s strategy of premium products. The analysis will contain cost benefit, qualitative and quantitative factors which will determine the overall value. Eventually, a best investment idea will be recommended to the company.

Three Investment Ideas

1) Providing extra services in fifteen 4-star hotels in the USA

The first investment idea is to providing extra services in the existing fifteen 4-star hotels in the USA. For example, these extra services could include special spa, bar, free airport shuttle and professional baby care. These services are provided on the purposes of bringing consumers convenience and offering better living experience.

The budget of $75 million dollars would be mainly allocated to refurbishing the excising infrastructures. Only some of the budget would be used to organizing new resources, details are provided in Appendix 1.

   

• Qualitative factors

Excellent extra service is very important for hotels as well as comfortable living environment. Thus, there are a lot of benefits for hotels to providing extra services. Firstly, excellent services offer opportunities for the company to enter a niche market. Furthermore, this investment will make it more competitive in the robust market. As these services are on the purpose of bringing customers convenience, when some customers’ needs are satisfied, more customers would be attracted and their loyalty would be enhanced. To some extent, this investment could improve company’s reputation as well. In addition, since some employees would be trained to catering for these services, they will get the opportunity to learn new skills, which will satisfy them.

• Cost-benefit

The main cost of this investment is new equipment, training and refurbishment cost. Since some special spa and bar will be built in fifteen 4-star hotels in the USA, it will cost the Eagle’s Nest Hotel Inc. about $30,000 for one hotel. Moreover, in order to offer the professional baby care, it will cost $45,000,000 for employee training. In addition, there will be other costs on the refurbishment, labour, advertising and overhead, which are $640,000 dollars. As these extra services will be provided in the existing fifteen 4-star hotels, the total cost amount should multiply by 15 times. Thus the total cost in first year is $54,600,000 dollars. At the same time, in the first year, the income of extra services will be $25,000. By adding room incomes, the total income of first year will be $160,000. So this investment will make a loss of $29,440,000 in the first year (see in Table 1). The pay-off period of providing extra service doesn’t occur until Year 3 (see in Table 2). 

Cost-benefit Analysis (Table 1)

Cost ($k)	Year 1	Year 2	Year 3	Year 4
Equipment	45,000	3,000	1,500	0
Training	3,000	1,500	1,000	800
Refurbishment	2,500	0	0	0
Labor fee	800	700	600	650
Advertising	1,300	800	500	300
Overhead	2,000	2,100	1,500	1,200
Total cost ($k)	54,600	8,100	5,100	2,950
Income of services	25,000	28,500	31,000	33,500
Room price ($)	400	400	400	400
Sales volume	400	550	580	650
Total income ($k)	25,160	28,720	31,232	33,760
Profit ($k)	-29,440	20,620	26,132	30,810

 Pay-off Period (Table 2)

	Year 1	Year 2	Year 3	Year 4
Total costs ($k)	54,600	8,100	5,100	2,950
Total income ($k)	25,100	28,720	31,232	33,760
Net profit ($k)	-29,440	20,620	26,132	30,810
Cumulative ($k)	-29,440	-8,820	17,312	48,131

2) Setting up the Official Website

Due to the increased population using the Internet, it will be beneficial for Eagle’s Nest Hotel Inc. to set up its official website. This investment is cost-efficient as the company only need to build up a website by recruiting IT experts. There will be online booking system in its website page, and also news about the company.

• Qualitative factors

As it is an information society today, people can’t live without the Internet. And there are more and more people booking rooms online in advance before traveling. Therefore, it is necessary for Eagle’s Nest Hotel Inc. to build up its official website. It allows customers to book rooms online directly with the hotel instead of booking through hotel reservation websites, which may charge booking fees. And customers can see photos of hotels and rooms clearly before checking in. Moreover, it will also be used for publishing the company’s news and advertising the latest promotions. This investment will focus on all target customers among different price-range hotels of Eagle’s Nest Hotel Inc.

This investment idea enables the company to provide premium services to customer, which will increase the customer loyalty and bring more profits.

• Cost-benefit

The main cost spent in this investment will be the website appearance design, online booking system establishment, and labour cost.

In the first year, it will cost the company about $6,800,000, including $1,000,000 in designing the website, $4,000,000 on online booking system. The other costs contain maintenance fee, labour cost and overheads. By using cost-benefit analysis (see in Table 3), there seems to be a loss of $4,700,000 in the first year as there will be many initial investments. In the second year, the company is likely to see a profit of $1,780,000. The pay-off period doesn’t occur until the 3nd year (see in Table 4).

Cost-benefit Analysis (Table 3)

Cost ($k)	Year 1	Year 2	Year 3	Year 4
Website design	1,000	0	0	0
Online booking system	4,000	0	0	0
Maintenance fee	700	500	500	500
Labor cost	600	400	400	400
Overheads	500	400	400	400
Total cost ($k)	6800	1,300	1,300	1,300
Room price ($)	350	350	350	350
Sale volume	6,000	8,800	9,000	10,000
Total income ($k)	2,100	3,080	3,150	3,500
Profit ($k)	-4,700	1,780	1,850	2,200

 Pay-off Period (Table 4)

	Year 1	Year 2	Year 3	Year 4
Total cost ($k)	6,800	1,300	1,300	1,300
Total income ($k)	2,100	3,080	3,150	3,500
Net profit ($k)	-4,700	1,780	1,850	2,200
Cumulative ($k)	-4,700	–2,920	-1,070	1,130

3)Building Theme Hotels

Based on the principle of “Culture Experience”, Eagle’s Nest Hotel Inc. could invest to build ten theme hotels. These hotels could be built in 10 cities which are filled with unique culture. For example, these hotels could include a car-theme hotel in Detroit. Inside guest rooms, beds are designed on the basis of 1:1 real cars and wallpapers are scenes along the road. Meanwhile hotel also provides a club dressing with car seats, auto parts decoration and car posters enabling the auto fans to gather together. Among the allocated budget of $75 million dollars, the main cost would be the decoration cost.

• Qualitative factors

Theme hotel would combines hotel services with customer experience. It aims to make customers feel the distinct culture during the process of consumption. The core feature of the theme hotel that differs from other star hotels lies in its reasonable price and high cost-performance ratio. Customers could enjoy the luxury services but with characteristics of economy hotels. It would be a core competitive which offers opportunities for company to be more competitive in cruel market. Furthermore, since these hotels are built in the cities full filled with unique cultures, there will be a large flow of people who would be attracted. Thus for the company, market share may be higher and more profit as well.

• Cost-benefit

The total capital investment is 55 million dollars: constructions for hotel will cost 3 million dollars, the equipments of guest rooms costs 19 million dollars. Moreover, renovation costs (including guest rooms and clubs) take 22 million dollars. Through the analysis, annual profit will be around 6,570,000 dollars (see in Table 5), and getting the investment cost back takes 8 years and 5 months (see in Table 6).

Cost-benefit Analysis (Table 5)

Pay-off Period (Table 6)

Strategic Evaluation

As it is known, the current strategy implementing in Eagle’s Nest Hotel Inc. is premium products. Therefore, the future investment should certainly be decided in consistent with this strategy, which develops and maintains products or services offerings of the highest quality. With this, the company will be unique among the other competitors in the market segments.

In relating with the three investment ideas, providing extra services in existing hotels can help the company to offer its customers better services and more confortable living environment. Besides, setting up official website will enable customers to book rooms in an easier way. In addition, the investment in building theme hotels will allow customers to enjoy extraordinary living experience and services.

Recommended Idea

The best investment idea that recommended for Eagle’s Nest Hotel will be to provide extra services in fifteen 4-star hotels in the USA.

Firstly, it meets the strategy of premium products, which means offering best products or services offerings for customers. Secondly, on the basis of both qualitative and quantitative data analysed above, the idea of setting up official website will get the cost back in the fourth year, but the profit will be much lower than providing extra services. Besides, the third option of building theme hotels takes too long to recover the cost, and this definitely brings risks.

Therefore, providing extra services in fifteen 4-star hotels in the USA will be the best choice for Eagle’s Nest Hotel Inc. to expand its business.

Conclusion

To sum up, three investment ideas suggested for Eagle’s Nest Hotel Inc. are providing extra services in fifteen 4-star hotels in the USA, setting up official website and building theme hotels.

Through cost-benefit, pay-off period analysis and other qualitative evaluation, the pros and cons of each idea have been provided. This helps to come up with the best option for the company.

The most suitable investment idea for this company would be providing extra services in fifteen 4-star hotels in the USA, because the company could develop new infrastructures on the basis of existing hotels. The most significant advantage is the high profit, which has been indicated in the cost-benefit analysis.

Analysis Document

The Evaluation Process

Three idea evaluation tools have been used to evaluate investment ideas for Eagle’s Nest Hotel Inc. The three tools include brainstorming, solution matrix and Cope’s CHOICE model.

Brainstorming

We used brainstorming to come up with ten investment ideas.

Solution Matrix

Solution Matrix has been used to pick out the best three investment ideas from nine options. The three ideas are providing extra services, setting up the official website and building theme hotels

Options	Ease of Implementation	Impact	Acceptability	Score	Action
Build theme Hotels	8	6	7	336	Yes
Provide extra Services	8	8	8	512	Yes
Sell products with logo	6	5	4	120	No
Build resort Hotels	7	6	6	252	No
Establish travel agency	6	5	5	150	No
Establish training institution	6	4	4	96	No
Build private Clubs	6	4	4	96	No
Real estate	5	4	4	80	No
Set up the official website	8	7	7	392	Yes

Cope’s CHOICE model

Investment idea 1

Providing extra services	1	2	3	4	5
Control
Hunger				The key area for making enhancements
Option
Internalization
Consequences				Possible area for making enhancements
End-game

Investment idea 2

Build website	1	2	3	4	5
Control
Hunger			The key area for making enhancements
Option
Internalization		Possible area for enhancements
Consequences
End-game

 Investment idea 3

Build theme hotels	1	2	3	4	5
Control
Hunger				The key area for making enhancements
Option
Internalization		Possible area for making enhancements
Consequences
End-game

According to the Cope’s CHOICE model, option 1, providing extra services in existing fifteen 4-star hotels could be the best option. Firstly, it could be controlled by Eagle’s Nest Hotel. Then, the option meets the companies’ strategy of continuing premium products. It fits their hungers to enhance customers’ loyalty and to be more profitable. Due to the success of Eagle’s Nest Hotel Inc. in the USA, it will be easy to implement.

In terms of option 2 and option 3, it can be seen from the Cope’s CHOICE model that the scores of hunger and internalization are low. The reason is that these two options haven’t satisfied all directors’ requirements. In order to increase their hunger for these investment ideas, analytical data and possible return will need to be indicated.

Stakeholder Analysis 

Stakeholder	S/Holder’s interest in the Project	Assessment of Impact		Strategies for gaining support or reducing opposition
		On S/holder	By S/holder
CEO	– The management of the company – The investment helps to gain benefits – Large interests	High	Agreement of the investment	Communicate with the CEO at every stage; present analytical data to provide feedbacks
Directors	– The management of the company -The investment helps to gain benefits – Large interests	High	Make changes of the project	Meet with directors to ask for their suggestions
Customers	– The target group of company – The investment helps to satisfy them – Regular	Middle	May influence the content of the investment	Do market researches like questionnaires to gain feedbacks