Assignment Scenario:
Jerry wants to buy an assisted Living Facility in his home town. Currently, the facility makes a profit each year of $10,000. However, the current director mentioned that if Jerry and his company wanted to perform a remodeling on the facility, that he could increase the room rates and make a profit of $40,000 annually. The facility is currently listed for sale for $650,000. However, a local real estate agent for long-term care facilities explained to Jerry that the likelihood of keeping at full capacity after raising the room rates is 70%.
Please answer the following questions on a seperate document, and submit your document for grading using this link.
Round your answers to the nearest 10th of a decimal ( 14.42659 = 14.4)
1. Calculate the Return on Investment (ROI) if the remodel is not done within the first year, we will call this, scenario 1.
2. Calculate the ROI for the second scenario, if we are able to remodel and charge more for rooms.
3. Calculate the Expected Value of both scenarios. REMEMBER, the likelihood is 70% and the chance it will not happen is 30%.
4. Next, calculate the Expected Value using the Sensitivity Analysis. What is the value?
5. What is the ROI of the new Expected Value after calculating the Sensitivity Analysis?
6. Then explain and justify whether you would recommend Jerry to buy or not buy the facility and why.
Submit your assignment as a word document, use the chapter reading and the step-by-step guide to do your calculations.
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