Q - 1. Why would a bid of $17,380,000 (the value of the hotel to MCS) not maximize MCS’s expected profit from participating in the auction?

MCS has given the value to Legacy around $17,380,000 and this value is higher than the appraised value of Legacy which is $15,112,000. If MCS pays this amount than the profitability of MCS reduce from ($2,268,000). This is because MCS is paying more than the appraised value in the Legacy Bid. The reason for paying this amount is that, MCS wanted to buy this hotel and within this hotel MCS is willing to develop the conference center that would be developed with the state-of-the-art technology. In this conference center it would provide the video, computing, exercise, support and discussion room facilities to its customers. Through this state-of-the-art conference center it would add value in the hotel services for the MCS if it buys it.

Table 1:

Legacy Appraised Value |
$15,112,000 |

MCS Value |
$17,380,000 |

Expected Profit/Loss |
($2,268,000) |

On the other hand, if MCS would not pay this much amount then the company would save $2,268,000 but MCS is bid at $17,380,000 so there would be loss as they are paying a higher amount than the appraised amount.

Please refer the Table 1 and Excel sheet for the calculation of expected loss for MCS.

Table 1:

Legacy Appraised Value |
$15,112,000 |

MCS Value |
$17,380,000 |

Expected Profit/Loss |
$2,268,000 |

Q - 2. If MCS bids slightly below $17,380,000, what happens to their probability of winning? What happens to the profit they make if they win?

If MCS bids slightly below from $17.38 million, then the probability of the bid would be 0.667. This will probably happen when MCS would bid around $17 million and its probability would result from (17m/15.112m) that would result in ratios of around 1.12 that lies between the given ratio range of 1.0061-1.0263 where the probability is around 0.667.

Please refer the Table 2 and Excel sheet for the Calculation of probability.

Table 3:

Appraised Amount |
$ 15,112,000 |

MCS Bid Amount |
$ 17,000,000 |

Percentage of Bid Amount |
1.124933827 |

Probability |
0.667 |

Q - 3. If MCS submits a bid of $15,112,000, what is their probability of winning the auction? What is their profit if they win with this bid?

If MCS submits the original appraised bid amount than the probability would be around 0.467 and this is due to the reason that ($15.112m/$15.112m) that would result in ratio of 1 that lies between the ratios of 0.9888-1.0001 where the probability is around 0.647. If MCS would win this bid than their profit would be $2,268,000 but with this profit there probability of winning the bid also reduces by 0.2 but in terms of percentage it would reduce around 33.15%. This would give the benefit in terms of probability to MCS’s competitors who are bidding with higher amount that is around 1.17% higher than the MCS’s bid amount. It would result in increasing the chances of its competitor to win the bid.

Please refer the Excel sheet for the below table’s calculations.

Table 4:

Appraised Amount |
$ 15,112,000 |
|||

MCS Bid Amount |
$ 15,112,000 |
|||

Percentage of Bid Amount |
1 |
|||

Probability |
0.467 |
|||

Range Minimum |
Range Maximum |
Cumulative Probability |
||

0.9888 |
1.0001 |
0.467 |
||

Previous probability |
0.667 |
|||

Reduced Probability in Percentage |
-0.2 |
|||

Q - 4. Calculate the bid that will maximize MCS’s expected profit from participating in the auction. Attach a copy of any excel spreadsheets used. The auction formulae in the textbook should not be used for this assignment.

Bidding for the Legacy Hotel Case Solution

The solution analyzed in question 1, according to the solution if MCS bid at $17.38 m then the expected loss would incur that would be around ($2,268,000). To ensure that the loss would be lower and the winning of bid chances improves, MCS should bid more than the Sheramar Hotel bid that is around $15.368m resulted from (15.112 * 1.017).

To win the bid MCS should go for a higher bid price that would be around $15.414m at this bid price the winning probability would be around 0.667 that decreases the Sheramar Hotel’s winning chances as well. At this bid price the expected loss would reduce from $2.268m to $1.965m.

Given below table is showing the expected loss and winning probability of MCS.................

*This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.*

The challenge is to prepare a sealed bid against one opponent for a hotel that has assessed value and identified a higher value for the company. There is data on the ratio of rates of other applicants to the appraised value in the same sealed bids. Students will learn to give up many unreasonable thing as a rate and to develop a strategic approach to finding the best deal.

This Darden study. "Hide

by Samuel E Bodily Source: University of Virginia Darden School Foundation 3 pages. Publication Date: November 29, 2006. Prod. #: UV0706-PDF-ENG