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Case 16: The Great White Hall

Case 16: The Great White Hall

Flatland view wants people to meet certain basic needs for proposals. The request for proposal requires respondents to calculate a benefit/cost ratio using a discount of 12%. The request for proposal stated that it would judge the proposals based on the construction cost and b/c ratios. Averell Johnson Company came up with a tightfisted proposal, which requires that all payments be made at the start of the construction. The project is meant to take one year, with a construction cost of $2.5 million. The annual benefit is supposed to add up to $120,000 per week while the annual operations are estimated to be $120,000 for the gym and $190,000 for the city offices.

The second proposal that has been supported entails a twelve months program of an auditorium and a small gym. This is meant to last for 30 years with an annual benefit of $ 120,000 per week from the gym, $7,200 from the theatre and $0.5 million from the library. The construction is meant to take one year at the cost of $4.8 million, a cost higher than the previous one. The annual operations will cost $110,000 for the gym, $165,000 for the city offices, $450,000 for the library, and $65,000 for the theatre. The annual amounts add up to $790,000 while the annual benefits per week average at about $130,000.

The third proposal is meant to run for 30 years. It is a proposal by a new firm that specialises in design and construction. The construction cost is meant to be $3.9 million in one year. The construction cost is lower than the second but slightly higher than the first. The proposal incorporates the theatre, city offices, and a gym. The annual benefits are the same as the second proposal except that the third one does not entail library benefits. This proposal reduces the cost of construction and increases the benefits. It is slightly better than the second is because it does not incur a lot of costs and does not charge more.

Case 17: A Free Lunch?

Question 1

Zippy presents his idea in a way that tries to show that the proposal will benefit the Superintendent entirely. He starts his suggestion with a claim that he wants her to use nothing to have her system fixed and find a way to make extra money. However, Zippy seems a bit secretive; it is as if he has something else planned out from the deal that he is not letting out.

Question 2

The Superintendent requires having her system fixed. Therefore, this may present a good deal in the case of the heating, ventilating, and air conditioning equipment. Zippy intends to fix this, and he will not charge the superintendent. However, the fans in the offices are centrifugal and thus use a lot of electricity. The fans that Zippy intends to use will only serve to add the cost of electricity because they will go at a higher speed. They are expected to be 400 HP, while it requires nine cubic horsepower when the capacity is at a 100%. Therefore, the Super may end up incurring many costs if she takes this deal. If she prefers quantity to quality, then she will ultimately accept the deal no matter the cost, but if she does not want to spend much on something she can spend much less, then she will not. The Super has lower MARR than Zippy, and therefore, Zippy might just ensure that she gets what he promises.

Question 3

The Super can bargain with Zippy that instead of sharing the benefits equally, the Super can get a slightly higher percentage that she can use to pay for the cost after the period of three years. The deal is beneficial to the Super, even if it is at an added cost. The Super will just have to share the money with Zippy for three years and then she can enjoy the results of these systems for the next seven years after that. Therefore, the Super should take the proposal, regardless of the cost.

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