“GOLD MOUNTAIN SKI RESORT
You work for a venture firm and have been asked to analyze a proposal from a group of investors interested in building a new ski area in Colorado. The demand for skiing is growing and existing resorts
have raised prices and reported record profits for the last two seasons.
Gold Mountains business strategy is to
offer the ultimate ski experience; short lift lines, uncongested ski slopes,
and spectacular scenery. With a 2,500 foot vertical drop, 10 trails, and one
triple (three person) ski lift, it can provide a very uncongested ski resort.

The planned triple-person lift delivers a chair every 20 seconds, 180 chairs
per hour (3 chairs per minute, 60 minutes per hour), or 540 skiers per hour
(180 chairs per hour, 3 skiers per chair). This puts an average of only 54
skiers per hour on each of the 10 trails. Some trails will be more popular than
others, but this average number of skiers per trail per hour is still below the
industry average.
The cost to build the ski runs, parking
lots, and buildings and to erect the chair lift is $52M. To raise this amount
of capital requires an annual financing cost (debt service & dividends) of
$8.3M. The annual fixed operating cost (land lease, utilities, labor, taxes, and
insurance) of the ski resort is projected to be $4.1M. For each 100 skiers per
day, additional employees must be hired to staff the ticket office, ski patrol,
parking lots, etc. The daily cost of the additional labor is $200 per 100
skiers per day.
The typical skier makes two ski runs per
day (uses the lift twice). Ski resorts operate their lifts 8 hours per day, 120
days per year. Gold Mountain plans to sell one day lift tickets for $60 per
skier, no half day or season passes will be offered.

Required:
Part
A: Write a memo to the venture partner in charge of
this account recommending one of three actions: aggressively pursue this
investment; gather more information; or reject the project. Justify your
recommendation with a concise, well-reasoned, fact based analysis. In addition
to the memo, you should attached an easy to understand spreadsheet that shows
your full analysis of the numbers. In
the spreadsheet, you should design an input area for further what-if analysis
that allows for changes to be made in the base numbers. This input area should
flow to the calculations in your spreadsheet.
Part
B: After completing your analysis in Part A, but
before you submit the memo to your boss, Gold Mountain informs you that they
are considering a change from the triple-person lift to a four-person chair
lift. The new chair lift will add an additional $75,000 per year to the annual
financing cost, bringing the annual financing cost to $8.375M. This lift will
be able to carry 720 skiers per hour, as the triple would only carry 540 per
hour. How do these changes alter your conclusion from Part A? Add this new
analysis and discussion of the possible change to your memo.
Part
C: In addition to the information you have been
given, consider alternatives to the existing plan that you might recommend to
make the venture more successful. If your ideas increase revenues and/or
expenses, be sure to incorporate those estimates into your analysis to show the
effect. GOLD MOUNTAIN SKI RESORTYou work for a venture firm and have been
asked to analyze a proposal from a group of investors interested in building a
new ski area in Colorado. The demand for skiing is growing and existing resorts
have raised prices and reported record profits for the last two seasons. Gold Mountains business strategy is to
offer the ultimate ski experience; short lift lines, uncongested ski slopes,
and spectacular scenery. With a 2,500 foot vertical drop, 10 trails, and one
triple (three person) ski lift, it can provide a very uncongested ski resort.
The planned triple-person lift delivers a chair every 20 seconds, 180 chairs
per hour (3 chairs per minute, 60 minutes per hour), or 540 skiers per hour
(180 chairs per hour, 3 skiers per chair). This puts an average of only 54
skiers per hour on each of the 10 trails. Some trails will be more popular than
others, but this average number of skiers per trail per hour is still below the
industry average.The cost to build the ski runs, parking
lots, and buildings and to erect the chair lift is $52M. To raise this amount
of capital requires an annual financing cost (debt service & dividends) of
$8.3M. The annual fixed operating cost (land lease, utilities, labor, taxes, and
insurance) of the ski resort is projected to be $4.1M. For each 100 skiers per
day, additional employees must be hired to staff the ticket office, ski patrol,
parking lots, etc. The daily cost of the additional labor is $200 per 100
skiers per day.The typical skier makes two ski runs per
day (uses the lift twice). Ski resorts operate their lifts 8 hours per day, 120
days per year. Gold Mountain plans to sell one day lift tickets for $60 per
skier, no half day or season passes will be offered.Required:Part
A: Write a memo to the venture partner in charge of
this account recommending one of three actions: aggressively pursue this
investment; gather more information; or reject the project. Justify your
recommendation with a concise, well-reasoned, fact based analysis. In addition
to the memo, you should attached an easy to understand spreadsheet that shows
your full analysis of the numbers. In
the spreadsheet, you should design an input area for further what-if analysis
that allows for changes to be made in the base numbers. This input area should
flow to the calculations in your spreadsheet.Part
B: After completing your analysis in Part A, but
before you submit the memo to your boss, Gold Mountain informs you that they
are considering a change from the triple-person lift to a four-person chair
lift. The new chair lift will add an additional $75,000 per year to the annual
financing cost, bringing the annual financing cost to $8.375M. This lift will
be able to carry 720 skiers per hour, as the triple would only carry 540 per
hour. How do these changes alter your conclusion from Part A? Add this new
analysis and discussion of the possible change to your memo. Part
C: In addition to the information you have been
given, consider alternatives to the existing plan that you might recommend to
make the venture more successful. If your ideas increase revenues and/or
expenses, be sure to incorporate those estimates into your analysis to show the
effect. “