Question

Mini- Case: Medical Tourism & Wellness

Health and wellness has become increasingly important to hotel guests.

            Marriott is considering purchasing a turnkey spa management system that integrates Customer Relationship Management (CRM) for hotel guests who have indicated a wellness and spa desire during their hotel stays. The system would employ social media to keep guests abreast of the latest in health information; provide video descriptions of the spa treatments offered; and for which conditions; spa cuisine offers healthful cuisine recipes online expert advice for their health needs; and provides a live treatment booking tool. While in the spa, the guest will have access to a Physician Assistant (PA) for health checks and prescriptive drug filling as needed, along with an electronic online personal record for keeping track of their personal health.

Determine the ROI for the new Marriott International Spa IT system purchase. Given: The system costs $1,000,000 for Marriott International to purchase this new spa system.

You project that the new system would increase revenue $300,000 per year for 5 years. The system will decrease spa labor costs by approximately $100,000 per year for 5 years.

CALCULATE the ROI and show your work

At a cost of capital of 10% would you recommend that you purchase this new spa system? Why or Why not?

YES or NO and Why or Why Not?

Answer 1

Answer: Initial Investment = $ 1,000,000

Change in revenue for each year = ($300000 + $100000)

= $ 400000

ROI = Change in Revenue÷ Initial Cost

= 400000/1000000

= .40 or 40%

Working Note: Calculation of NOV

: Net Cash Inflows= $300000 + $100000

= $400000

PV of Cash Inflows= Cash Inflows * (1/1+r)^n

(where r is cost of capital and n is number of years)

= 400000 * (1/1+.10)^5

= 400000 * 3.79 = 1516000

NPV= PV of Cash Inflows- Initial outflow

= 1516000 - 1000000

= 516,000

It is recommended to purchase the new spa system as it has a high positive NPV.