Badger Creek is a golf course located northwest of Toronto. It is currently in o
ID: 2515272 • Letter: B
Question
Badger Creek is a golf course located northwest of Toronto. It is currently in operation but is for sale. Samantha is looking at buying it for $14,000,000. If she buys the golf course she will have to spend another $7,000,000 to renovate it. After renovations, there will be a full 18 hole course as well as an executive 9 hole course. Samantha will also need another $1,000,000 as operating funds to smooth over any cash shortfalls while she rebuilds the business. Samantha has $12,000,000 and will have to borrow the rest. Samantha feels that she can sell 100 memberships for $5,000 per year. Memberships provide preferred tee-off times. An 18 hole round of golf costs each player $40. A 9 hole round costs each player $25. Players typically play as a foursome meaning four players at once. Each course can accommodate 10 foursomes an hour and has tee-off times scheduled for 10 hours a day. Weather studies show an average of 120 days a year which are suitable for golf. On the cost side, Samantha figures it will cost her $2,000,000 a year to operate the course. Plus there is interest on the loan at 6%. At the end of fifteen years she expects she can sell the golf course to a housing developer for $25,000,000 at which point she will pay back the loan. please explain
Explanation / Answer
Explanation :
Startup Expenses
Cost of acquiring the golf course
Calculation of loan amount
Annual operational earnings
The method used for calculation of revenue from general operations :
Total number of working days: 120
Total number of hours a day: 10
Total hours : 1,200
Number of foursomes (4 players) in an hour in each course: 10
Note: Remember we have two courses.
Cost of 18 hole round per player : $40
Cost of 9 hole round per player: $ 25
Total cost across both the courses in an hour :$(65 x 4 x 10) = $2,600
For calculation of operational revenue, multiplying the total cost generated in an hour to total operational hours : (1200 x 2600) = 3,120,000
Final summary after 15 years :
NOTE : The occupancy rate of the course for the calculation of operational revenue is taken to be 100%. However usually that's not the case. It is around 80% - 90% on an average.
Cost of acquiring the golf course
$14,000,000 Renovation cost $7,000,000 Additional capital fund $1,000,000 Total Expenses(At the time of acquisition) $22,000,000Related Questions
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