Case Type: market entry, new market; math problem.
Consulting Firm: A.T. Kearney first round job interview.
Industry Coverage: tourism, hospitality, lodging; property, real estate.
Case Interview Question #00480: For this case, your client is American business magnate and real estate developer Donald Trump. He is currently assessing a new project idea for his company.
Costa Rica is a multilingual, multiethnic and multicultural country in Central 
America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east. Costa Rica has a beautiful coastline which has historically been difficult to access. The nearest international airport (Juan Santamaria International Airport) was over six hours away. As of last year, a new international airport (Daniel Oduber Quiros International Airport) was constructed only a half hour away.
Since then, there has been an investment boom in the region due to the increasing number of tourists (popular with Americans and Asians). The Mandarin Oriental and The Four Seasons, two prominent luxury hotel chains, were the first to enter this market with a 300-room hotel each. Your client Donald Trump is considering investing in the tourism opportunity created by the new airport. Would you recommend that Trump enter the market?
Possible Answers:
Part #1: Client’s Core Competencies
In this case ROI is defined as (operating profit – initial investment / intial investment), I don’t believe this is correct. ROI is net profit/initial investment, however, initial investment is a capital expenditure and therefore not on the income statement (it goes on balance sheet instead). So for example
“Option 1: Lover’s Lair
Operating Profits: ($450 price per room per night – $250 operating costs per room per night) * 500 rooms * 350 nights/year * 50% occupancy rate = $17.5 million operating profits/year (a)
Initial Investment: $30,000 cost/room * 500 rooms + $2,000,000 land = $17 million (b)
Net Profit: (a) – (b) = $17.5M – $17M = $500,000 (c)”
this is in fact wrong, correct answer should be net profit = 17.5 million dollars, ROI = 17.5/17 = 103%
Thanks for the sharing. However, I don’t think the formula: Revenue = “Price per night * number of nights * number of rooms * nights per year * occupancy rate” is correct. By doing that you will multiply the # of nights twice since “number of rooms” is actually equal to “nights per year”. Can someone explain it?
I think you’re right, the formula should be: revenue = price per night * number of rooms * nights per year * occupancy rate. Thanks for the catch, corrected now.