The Summit restaurant has operated in a resort community near a popular ski area of Colorado for years. The restaurant is busiest during the first 3 months of the year, when the ski slopes are crowded and tourists flock to the area.
When Bob and Amy Pope built The Summit, they had a vision of the ultimate dining experience. As the view of surrounding mountains was breathtaking, a high priority was placed on having large windows and providing a spectacular view from anywhere inside the restaurant. Special attention was also given to the lighting, colors and overall ambiance, resulting in a truly magnificent experience for all who came to enjoy gourmet dining. Since its opening, The Summit has developed and maintained a reputation as one of the "must visit" places in that region of Colorado.
While Bob loves to ski and truly appreciates the mountains and all that they have to offer, he also shares Amy's dream of retiring to a tropical paradise and enjoying a more relaxed lifestyle on the beach. After some careful analysis of their financial condition, they knew that retirement was many years away. Nevertheless, they were hatching a plan to bring them closer to their dream. They decided to sell The Summit and open a bed and breakfast on a beautiful beach in Costa Rica. While this would mean that work was still in their future, they could wake up in the morning to the sight of the palm trees blowing in the wind and the waves lapping at the shore. They also knew that hiring the right manager would allow Bob and Amy the time to begin a semi-retirement in a corner of paradise.
To make this happen, they would have to sell The Summit for the right price. The price of the business would be based on the value of the property and equipment as well as projections of future earnings. A forecast of earnings for the next year is needed to help in the determination of the value of the restaurant. Monthly earnings for each of the past 3 years are provided in the table (dollars in thousands).
Month 2015 2016 2017
Jan 438 444 450
Feb 420 425 438
Mar 414 423 434
April 318 331 338
May 306 318 331
Jun 240 245 254
Jul 240 255 264
Aug 216 223 231
Sept 198 210 224
Oct 225 233 243
Nov 270 278 289
Dec 315 322 335
- With Excel, show a graph of the data. On this same graph, plot a 12-month moving average forecast. Discuss any apparent and seasonal patterns.
- Use regression to develop a trend line that could be used to forecast monthly earnings for the next year. Is the slope of this line consistent with what you observed in question 1? If not, discuss a possible explanation.
- Use the multiplicative decomposition model and these data to forecast earnings for each month of the next year. Discuss why the slope of the trend equation with this model is so different from that of the trend equation in question 2.
- EXTRA CREDIT: As a potential buyer, given what you know about the restaurant and the forecast earnings, could you estimate the price you would be willing to pay for the restaurant? Explain why or why not.
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