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Medium Market Entry Financial Analysis

Seaworthy Floating Hotel

#Retail
ProHub Comment

This case tests candidates' ability to build a comprehensive financial model for a hospitality venture with unusual operational characteristics. The key challenge is identifying critical assumptions (occupancy rates, cost structures, seasonal variation) and structuring revenue/cost calculations for a two-location operation. The case rewards structured thinking and attention to operational details like housekeeping requirements and docking fees.

Estimated Time 26 minutes
Difficulty Medium
Source ROSS
69 / 100
Your client is a successful entrepreneur based in Manhattan. She is always thinking of creative ways to start new businesses. Her latest idea is to build a floating hotel (think of a skyscraper on a barge, and the combined structure is seaworthy). Today is Oct. 1, and she must make a decision ASAP –her preferred construction company and barge manufacturer conveniently have openings on Nov.1 for projects. If she misses this window it will be another two years before both companies can simultaneously work together. The entrepreneur hires you to assess whether she should spend $20M to build a ‘floating hotel that is seaworthy’.

Clarifying Information

  1. The hotel can travel on water like a sea vessel
  2. Time for construction and validation: 1 year
  3. Location for hotel & barge fabrication: New Jersey
  4. Locations of interests: Two city strategy. Miami 11/1 to 4/30 and Manhattan 5/1 to 10/31 to take advantage of high seasons year-round
  5. $20M is a sunk investment and represents all labor, material and testing costs to manufacture and validate the seaworthy floating hotel
  6. The financial objective is 20% ROI in the first year
  7. She wants to begin operating the hotel as soon as construction and testing conclude; that is, Nov. 1 of the following year
  8. Assume no construction delays
  9. Assume the client has sufficient funds
Mock Interview
Interviewer

Your client is a successful entrepreneur based in Manhattan. She is always thinking of creative ways to start new businesses. Her latest idea is to build a floating hotel (think of a skyscraper on a barge, and the combined structure is seaworthy). Today is Oct. 1, and she must make a decision ASAP –her preferred construction company and barge manufacturer conveniently have openings on Nov.1 for projects. If she misses this window it will be another two years before both companies can simultaneously work together. The entrepreneur hires you to assess whether she should spend $20M to build a 'floating hotel that is seaworthy'.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
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Practice this case with AI Mock Interview

Evaluate whether a $20M investment in a novel seaworthy floating hotel operating seasonally between Miami and Manhattan can achieve a 20% first-year ROI. The analysis requires modeling room revenues, operating costs (variable and fixed), and determining if profitability supports the investment decision.

Key Insights:

  1. Revenue modeling: 625 rooms (25 floors × 25 rooms/floor) × 80% occupancy × $200/night generates $36M annual room revenue plus $2.4M from first-floor amenities = $38.4M total
  2. Cost structure: Variable costs (housekeeping $100-$150/room/day, required year-round) and fixed costs (docking fees $1-3M/season, insurance) total $32.1M annually
  3. Financial outcome: $38.4M revenue - $32.1M costs = $6.275M profit; $6.275M / $20M = 31.375% ROI exceeds 20% target
  4. Competitive advantage: First-mover status in seaworthy floating hotels; ability to capitalize on seasonal tourism in two premium markets mitigates occupancy risk
  5. Risk considerations: Execution risk as first entrant, competitive entry threat, docking fee volatility, and actual occupancy achievement vs. 80% assumption