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Medium Investment Decision

Lola Lo’s Zoo

#Entertainment
ProHub Comment

This is a quantitative-heavy investment decision case centered on net present value analysis. The case tests the candidate's ability to structure a framework around breakeven analysis, calculate annual cash flows, and determine a maximum purchase price using NPV calculations with a perpetuity component. The 29-year revenue stream (50-year lifespan minus 21-year current age) provides the time horizon for discounting.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100

Our client, Lola Lo, owns and runs a zoo in a major metropolitan area within the United States. There has been a recent discovery of a dinosaur on a small island in the South Pacific. This is the only dinosaur in the world. Lola Lo would like to investigate if purchasing the dinosaur is a good project.

Specifically, please help our client with the following questions:

  1. How would you determine if purchasing the dinosaur is a good project?
  2. If it is, how would you determine the purchase price for the dinosaur?

Clarifying Information

  1. The dinosaur is the size of an elephant.
  2. The dinosaur can easily be transported from the South Pacific to the United States.
  3. The dinosaur cannot reproduce.
  4. The dinosaur is not violent, but cannot interact with non-trained individuals.
  5. The zoo has enough land to house the dinosaur and construct an exhibit area without reconfiguring the existing park.
  6. Current Age: 21 years
  7. Expected Lifespan of Dinosaur: 50 years
  8. Revenues (annual): Tickets: $2,000,000; Hotels Accommodations: $1,000,000; Movie & Entertainment Licensing: $500,000; Food in the Park: $500,000; Merchandise: $250,000; Research: $250,000
  9. Fixed Costs (one-time): Exhibit Area and Housing Area: $15,000,000
  10. Variable Costs (annual): Staff to Serve the Dinosaur: $1,000,000; Food & Merchandise Sales: $250,000; Operations: $250,000
  11. Discount rate = 10%