Diamond Cruise lines is about to relaunch a cruise ship. Business decisions needs to be made in terms of which activities should be located on the main decks of the ship. Currently, Diamond has plans for each floor as follows: 3rd level: This space is only suited for a bar/restaurant. Diamond plans on locating the Nostalgia Bar at this location. 2nd level: This space is only suited for a casino. Diamond plans on locating the Lucky-7 casino at this location. 1st level: This space has limited use, and will be used to sell shore-excursion packages Venue Entertainment has made separate offers to rent the 1st level and 2nd Locations. Diamond can choose to either accept either one or both offers. Other Weekly information is as follows: Location Space required Revenues if Diamond Activity Variable Costs Rental income if Diamond if rented to Venue operates $2,000 2nd level 30,000 square ft $100,000 3rd level 25,000 square ft $40,000 operates $1,800 5,000 square ft Sightseeing Casino 1st level $250 $40,000 $12,000 $55,000 Nostalgia Bar No rental offer There are $40,000 in weekly fixed costs associated with operating the three locations. REQUIRED: Which option should be selected for each location? Allocate the fixed costs to each location. (there are a few possible ways to allocate these fixed costs, and marks for this question are based on your choice of method used to allocated these fixed costs). Identify two qualitative factors that should be considered in deciding if Diamond should rent space to Venue.
Diamond Cruise lines is about to relaunch a cruise ship. Business decisions needs to be made in terms of which activities should be located on the main decks of the ship. Currently, Diamond has plans for each floor as follows: 3rd level: This space is only suited for a bar/restaurant. Diamond plans on locating the Nostalgia Bar at this location. 2nd level: This space is only suited for a casino. Diamond plans on locating the Lucky-7 casino at this location. 1st level: This space has limited use, and will be used to sell shore-excursion packages Venue Entertainment has made separate offers to rent the 1st level and 2nd Locations. Diamond can choose to either accept either one or both offers. Other Weekly information is as follows: Location Space required Revenues if Diamond Activity Variable Costs Rental income if Diamond if rented to Venue operates $2,000 2nd level 30,000 square ft $100,000 3rd level 25,000 square ft $40,000 operates $1,800 5,000 square ft Sightseeing Casino 1st level $250 $40,000 $12,000 $55,000 Nostalgia Bar No rental offer There are $40,000 in weekly fixed costs associated with operating the three locations. REQUIRED: Which option should be selected for each location? Allocate the fixed costs to each location. (there are a few possible ways to allocate these fixed costs, and marks for this question are based on your choice of method used to allocated these fixed costs). Identify two qualitative factors that should be considered in deciding if Diamond should rent space to Venue.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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solve the question completely given in the image provided.
Transcribed Image Text:Diamond Cruise lines is about to relaunch a cruise ship. Business decisions needs to be made in terms of which
activities should be located on the main decks of the ship. Currently, Diamond has plans for each floor as follows:
3rd level: This space is only suited for a bar/restaurant. Diamond plans on locating the Nostalgia Bar at this
location.
2nd level: This space is only suited for a casino. Diamond plans on locating the Lucky-7 casino at this location.
1st level: This space has limited use, and will be used to sell shore-excursion packages
Venue Entertainment has made separate offers to rent the 1st level and 2nd Locations. Diamond can choose to
either accept either one or both offers.
Other Weekly information is as follows:
Activity
Location Space required
Revenues if
Variable Costs
Rental income
Diamond
if Diamond
if rented to
Venue
operates
$2,000
30,000 square ft | $100,000
25,000 square ft $40,000
operates
$1,800
$40,000
$12,000
Sightseeing
Casino
5,000 square ft
$250
1st level
2nd level
$55,000
No rental offer
Nostalgia Bar
3rd level
There are $40,000 in weekly fixed costs associated with operating the three locations.
REQUIRED:
Which option should be selected for each location?
Allocate the fixed costs to each location. (there are a few possible ways to allocate these fixed costs, and
marks for this question are based on your choice of method used to allocated these fixed costs).
Identify two qualitative factors that should be considered in deciding if Diamond should rent space to
Venue.
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