Promotional Budget, Gym Equipment, Plants And Software Financing | Crystal Hotel

Promotion Planning

Organization is associated with the several types of activities in which various actions and activities are undertaken to achieve the desired set goals and objectives. This reprot focuses on identifying the promotional budget, plant financing, venue costing and break-even point at which company will have no profit no loss in its business functioning. however, several supporting budgets plans have been given to estimate expenses and income of the undertaken project. 

This task answer the question related to the fact that whether the Crystal Hotel private limited should finance its small gym on rooftop through the method of buying process or go for the rent process for the gym equipment’s. However, while determine which options should be selected time value of money and financing methods have been taken into consideration.  

The below given table reflects the cost of the gym equipment will be $43024 over the three years if the project is financed by using the buy option (Weygandt, Kimmel,. and Kieso, 2015).

BUY OPTION
	COST Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Discounted Residual Value	Servicing	Total Cost over 3 years
Treadmill (3 pieces)	$18,171	$721	$600.00	$18,050
Elliptical Trainer (2 pieces)	$8,078	$321	$600.00	$8,357
Exercise Bike (4 pieces)	$13,328	$529	$600.00	$13,399
Rowing Machine (1 piece)	$2,726	$108	$600.00	$3,218
TOTAL COST	$42,303	$1,679	$2,400	$43,024

The below given table reflects the cost of the gym equipment will be $ 12519 over the three years if the project is financed by using the rent option.

RENT OPTION
Discounted Value Year 1	Discounted Value Year 2	Discounted Value Year 3	Total Cost over 3 years
$1,824	$1,740	$1,659	$5,223
$935	$892	$851	$2,678
$837	$798	$761	$2,397
$776	$740	$706	$2,222
$4,372	$4,170	$2,318	$12,519

Advantages and disadvantages of buying option

The main advantages of the financing the gym equipment through buying option would be related to the ownership program. It will provide the ownership on the equipment’s to Crystal Hotel. However, it will eventually increase the cost of the capital and will be highly costly for Crystal Hotel throughout the time.  If it goes for buying option then it financing the gym equipment cost would be $ 43024.  

Advantages and disadvantages of renting option

The main advantages of the renting the gym equipment through buying option would be related to its least cost and less amount of cash outflow. It will lower down the costing of the business and increase the overall return on capital employed. Nonetheless, the main disadvantages of renting option are related to the uncertainty of the availability of the gym equipment’s. If it goes for renting option then it financing the gym equipment cost would be $ 12519

Conclusion

After analyzing both options, it could be inferred that Crystal gym should go for renting option for buying gym equipment’s. 

In this part, net present value of the project has been identified to determine which project should be accepted.

Membership (Basic 39/month, Full Package 80/month)
Membership Project	Cash Outflow	Cash Inflow	Net Cash Flow	Tax	After Tax CF	PV Factor	NPV
Year 0	$35,350		-$35,350	$0	-$35,350	1	–                             35,350
Year 1	$808	$222,200	$221,392	$66,418	$154,974	0.9259	143,495
Year 2	$808	$238,481	$237,673	$71,302	$166,371	0.8573	142,637
Year 3	$808	$256,212	$255,404	$76,621	$178,783	0.7938	141,924
NPV							$392,705

Net present value reflects the differences between the present value of cash inflow and present value of cash outflow.  The positive net present value of $ 392705 reflects that Crystal Company will have positive NPV if the membership project is accepted for this year plan. If external users are given gym membership then it will increase the revenue of cash inflow yearly by $137,360 and will be consistently increased by 10%. It will give the higher level of net present value if the project is accepted.  The main explanation for allowing the external clients for use of gym equipment is related to increased cash inflow (Mwangi, and Murigu, 2015). 

Gym Equipment Financing

Crystal Hotel needs to lower down the cost of its business functioning and at the same time it has to stick with the quality measures of the undertaken work process (Brine, 2016).

Promotional Budget
Item	Price(excel GST)	GST	Price (inch GST)	Quantity Required	Total Budgeted Value
The Brisbane times (Quarter page strip)	1132	$113.20	$1,245	1	$1,245
Digital foyer advertising (weekly rate)	250.00	$25.00	$275	5	$1,375
Bus shelter poster (trail panel)	$550	$55.00	$605	3	$1,815
Digital Billboard (medium)	2500.00	$250.00	$2,750	1	$2,750
Printed Billboard	$600	$60.00	$660	3	$1,980
Flyers	$295	$29.50	$325	8	$2,596
Retail advertising	$358	$35.80	$394	8	$3,150
TOTAL	$5,685	$569	$6,254	29	$14,912

The above table reflects the best methods of promotional planning which could be used by company to promote its business to its clients. However, the table above reflects that the total budgeted costing of the promotional activities would be $ 14912 

There are below given computation of the following areas which have been asked in this report.

Contribution margin per unit of services- This will provide the contribution margin per unit which will be dependent upon the sales units or membership of the gyms to clients.

CVP ANALYSIS
CM	$      45.00
CMR	56.25%
Break-even (units)	1,000
Break-even ($)	$80,000.00
Number of units of service required to earn a target net profit of $ 100, 000	3222

Contribution margin per unit- $ 45

Contribution margin ratio-56.25%

Annual break-even point in units of service= 1000

Annual break-even point in dollars- $80000

Number of units of service required to earn a target net profit of $ 100, 000 for the year- 3222 (Brine, 2016).

Importance of CVP analysis and comment on effectiveness of this promotion based on your calculations

• Cost volume profit analysis identified in this case assists Crystal Company to figure out the changes in the profit due to the changes in the cost and volume effect.
• It will be used to make the informed decisions on the basis of cost volume and profit.
• It helps in determining the marginal cost, break-even point and other business factors.

The above calculation will be helpful in determining the cost and number of units to be sold for the target profit in business. 

There are two options available for setting up fresh plants into the lobby area, function and conference rooms. Crystal company could follow two specified options while accepting the particular option such hire professional company to maintain the fresh plants into the lobby area  and purchase the plants themselves.

The below given table reflects the cost of seting up fresh plants into the lobby area, function and conference rooms will be $ 38480 over the three years if the project is financed by using the buy option (Yelakova, and Karnach, 2015).

BUY OPTION
	Cost Year 0	Discounted Servicing Year 1	Discounted Servicing Year 2	Discounted Servicing Year 3	Total Cost over 3 years
Zamioculcas Zamiifolia (20 pieces)	$800	$12,133	$11,235	$10,402	$34,570
Raphis Excelsa (10 pieces)	$1,360				$1,360
Howea Forsteriana (10 pieces)	$570				$570
Chamaedorea Elegans (30 pieces)	$1,980				$1,980
TOTAL	$4,710	$12,133	$11,235	$10,402	$38,480

This given table reflects the cost of the seting up fresh plants into the lobby area, function and conference rooms if accepted through the hire purchase option. It will be $ 38482 over the three years if the project is financed by using the rent option.

Hire Purchase OPTION
Discounted Value Year 1	Discounted Value Year 2	Discounted Value Year 3	Total Cost over 3 years
$1,407	$1,303	$1,207	$3,917
$2,546	$2,358	$2,183	$7,087
$1,843	$1,706	$1,580	$5,128
$5,607	$6,056	$5,192	$16,854
$11,403	$11,422	$10,161	$32,987

Advantages and disadvantages of buying option for fresh plants into the lobby area, function and conference rooms

The main advantages of the financing the seting up fresh plants into the lobby area, function and conference rooms through buying option would be easy handling of the system process and it also allows company to arrange separate team for that particular year.  However, it will eventually increase the cost of the capital and will be highly costly for Crystal Hotel throughout the time.  If it goes for buying option then it financing the gym equipment cost would be $ 32987  

Plants Financing

The main advantages of the hire purchase agreement for seting up fresh plants into the lobby area function and conference rooms would be related to its least cost and less amount of cash outflow. It will lower down the costing of the business and increase the overall return on capital employed. Nonetheless, the main disadvantages of hire purchase option are related to the charge creation on the assets. . If it goes for hire purchasing option then seting up fresh plants into the lobby area, function and conference rooms would cost $ 12519

Conclusion

Therefore, after analyzing all the details and case study, it could be inferred that Company should go for financing the seting up fresh plants into the lobby area, function and conference rooms by using the hire purchase agreement. 

In this project, Company has two different options which could be used by it to finance its event management software packages for its business. However, below given is the calculation given for the two different projects.

Licence
Membership	Cash Outflow	PV Factor	PV of Cash outflows
Year 0	$6,900	1	$6,900
Year 1	$300	0.925925926	$278
Year 2	$309	0.85733882	$265
Year 3	$318	0.793832241	$253
TOTAL	$7,827	$4	$7,695

In order to finance its event management software packages, company will have to make the payment of $7695. 

On the other hand, there is another method which could be used for financing the event management software packages that is called subscription.

Subscription
Cash Outflow	PV Factor	PV of Cash outflows
	1	$0
$2,172	0.925925926	$2,011
$2,237	0.85733882	$1,918
$2,304	0.793832241	$1,829
$6,713	$4	$5,758

After analyzing both projects, it could be advised that company should select the subscription option for financing the software packages which will take capital outflow of $ 5758. This option will save company at least $ 2000 cash outflow from the business.

Conclusion

This project financing through the subscription process will take outflow of $ 5758. Therefore, this project should be accepted by the Crystal Hotel. 

The below given table reflects the total venue costing which will be required to complete the event.

Venue Costing
Item	Price(excel GST)	GST	Price (inch GST)	Quantity required	Total Cost
Chair cover hire	$8	$0.80	$9	300	$2,640
Gift hampers	$15	$1.50	$17	10	$165
Open entertainment	$30	$3.00	$33	3	$99
Balloon Canter pieces	$5	$0.50	$6	30	$165
Guest gifts	$8	$0.82	$9	300	$2,706
Food	$30.08	$3.01	$33	300	$9,926
Beverages	$9	$0.90	$10	300	$2,970
AV system and staging		$0.00	$0		$0
Event staff rate	$22	$2.20	$24	$70	$1,694
Total costing					$20,365

This event will take the overall costing of $ 20365 which will be least cost to conduct the particular event (Szychta, and Dobroszek, 2016). 

The below given table reflects all the detail and answer for the entire question asked for this question.

CVP ANALYSIS
CM	$      60.00
CMR	0.60
Break-even (units)	167
Break-even ($)	$16,666.67
Number of units of service required to earn a target net profit of $ 50, 000	1,000

• Contribution margin per unit of service- $ 60
• Contribution margin ratio=60%
• Number of units of service required to earn a target net profit of $ 50, 000 for the year= $16666.67

Importance of CVP analysis and comment on effectiveness of this meeting based on your calculations

It is analyzed that cost value profit analysis will assist in determining the contribution per unit of the services and how well company could determine the contribution margin. However, when the desired set of profit is given, it could be used to determine the target units to be sold to achieve the set profit.

Conclusion

In this report, assessment of the cost volume profit analysis have been analyzed which will reflects in evaluating the acceptance of the particular project. It is analyzed that Crystal Hotel needs to determine whether the renting or buying options should be accepted or not. Now in end, it could be inferred that in both cases Crystal Hotel should accept renting option for creating value on the investment.

References

Brine, A. ed., 2016. Handbook of Library Training Practice and Development: Volume Three. Routledge. 9(7), pp.152-179.

Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).

Szychta, A. and Dobroszek, J., 2016. Perception of Management Accounting and Controlling by Polish Authors in Publications in 1990–2016. In Proceedings of the 5th International Conference on Accounting, Auditing and Taxation (ICAAT 2016), ed. J. Alver, Tallinn, Atlantis Press. DOI (Vol. 10).

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.

White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis. 10(7), pp.175-185.

Yelakova, A.A. and Karnach, G.K., 2015. Role of Finanical Analysis in Organization Management System. International Business Management, 9(7), pp.1752-1755.