Hotel Vertu: Analysing the Opportunity in the Boutique Hotel Industry Harvard Case Solution & Analysis

Hotel Vertu: Analysing the Opportunity in the Boutique Hotel Industry Case Study Solution

Financial Analysis

In order to assess the viability of the project, a five-year financial analysis of the project has been performed using a growth rate of 5.9%. It is projected that as the result of undertaking the project, the cash flows or net operating income of the organization will increase by 33% as compared to 2015. Similarly, based on the current pricing structure followed by Peach Tree Inn, it is expected that the Revenue per Available Room (RevPar) will reach $128 in the next five years as compared to $96 currently. The RevPar is based on the assumption that the occupancy rates will increase by 5.9% each year as it is expected that the tourism industry will grow further in the next five years. Moreover, it is expected that the actual RevPar in the next five years will be greater than the projected RevPar as the hotel plans to set its price to 20% more than what the competitors offer.

In addition, it is planned that 49.9% of the total project costs amounting to $38.57 million will be financed by debt, 50% will be financed by Yvonne’s father, and $0.025 million will be contributed by both the founders from their personal savings. As the project seems profitable and the cash flows are expected to rise by 33% each year, paying off the interest expenses will be easier for the company. (See Appendix G & H)


On the basis of the analysis, D’ Arcy & Whiting are recommended to issue class A shares to Yvonne’s father and Class B shares for themselves. Issuing Class Ashares would reduce the issue of undue influences of Yvonne’s father in a way that Yvonne’s father would have few voting rights as compared to D’ Arcy & Whiting. In doing so, both D’ Arcy & Whiting would have control over the business operations and half of the required funds would be generated. In addition to this, the remaining amount of money could be raised through bank loans because it is a cost-effective technique of raising funds andthere would be predictable interest and principal payments. Also, the founders would not need to give up ownership of the business. One of the strong benefits of debt financing is tax deductions, because it is classified as an expense of business; the interest and principal payment could be subtracted from the income taxes. Additionally, taking out a long term and low-interest loan from banking institutions could fulfill the working capital requirements of founders in order to keep profitably and running smoothly year around. Further, the bank loan would assist in building business credit (Knight, 2009).

In addition, the foundersare recommended tobe equipped to respond and initiate a disruptive innovation with digital knowledge of threats. To create a sustainable business, the digital strategy of the company should be geared towards top priorities, such as: developing more personalized relationships with customers and developing new business models.The data-driven insights could be used & feed into the business strategy to enable real-time feedback & agility, relevancy and hyper-personalization. The core competencies of the company should include, location, competitive prices, amenities, flexibility, and diverse portfolio. The company should promote USPs, respond to & adopt feedback, provide exceptional guest experience and being flexible to change.

Action plan

Seeking debt from financial institution require D’ Arcy & Whiting to make the loan proposal which includes the business profile, loan repayment, business financial feasibility, management experience, and projections and so forth. Additionally, the founders need to select the investment bank to suggest them on issuing shares. They also need to calculate the amount of the required capital as well asthe value of shares that would be issued.Additionally, with a modern and fresh expression of its authentic and rich legacy, the company could provide an exceptional environment that creates unforgettable experiences of its discerning travels.........................


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