It is unlikely that the zebra acquisition is a good idea for the zoo to undertake given the information provided. At other zoos, attendance has gone up substantially due to a new zebra; however, based upon our market research, it seems less likely that we can breakeven on the investment through increased attendance. We have received an insurance contract to help mitigate some of the downside risk; however, it is too expensive to create value.
Other items to consider:
In order to make the investment more palatable, we may consider negotiating with the insurance company to either increase the revenue benefits provided or decrease the premium cost.
There are other creative options to drive zebra related revenue (merchandise) or decrease cost (look for a less expensive zebra)
Excellent interviewees:
- Identify that we can use another zoo’s attendance increase as a proxy for estimating our own attendance increases.
- Notice in Exhibit A that it is unlikely that attendance will increase sufficiently enough for the zoo to break even.
Outstanding interviewees:
- Notice that the insurance company’s premiums and benefits are both impacted by attendance increases; so if attendance increases are always greater than 5%, the zoo will be paying even more but getting no benefit.
- Notice that the insurance company’s contract is essentially an option; so a different structure to the contract may be more suitable for the zoo.