Refer to Table 1.1. Calculate the payback period for LT's proposed new Tour Hub.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [1] Payback at the end of Year 3 (36 months)
2. [1] ARR = average profit / average investment × 100
3. [1] Correct calculation of average annual profit (e.g., $170,000 - $120,000 = $50,000; $50,000 / 4 = $12,500)
4. [1] Correct calculation of average investment ($120,000 / 2 = $60,000)
5. [1] Correct final ARR percentage of 20.83% or 21%
6. [K] Knowledge of IA methods, such as payback, ARR, but also net present value (NPV)
7. [K] The new Tour Hub may provide access to a new market, so relevant 'generic' knowledge, such as market development
8. [K] Opportunity cost of investment decisions
9. [APP] The new Tour Hub will enable customers to access advice and book tours in person, whether coming from cruise ships or staying in the city.
10. [APP] The face-to-face contact may be welcomed by older, maybe high-income travellers who would not book on-line.
11. [APP] The new small group tours will be booked through the hub.
12. [APP] There will be a need for training for the full-time tour specialists who will be employed to work at the Tour Hub.
13. [APP] It may be necessary to keep the Tour Hub open for long hours to accommodate customer needs.
14. [APP] Reasonable payback and ARR. (OFR here)
15. [AN] Access to a new target market of customers who want to get advice and book 'in person', including on the small group tours, should lead to more sales and ultimately more profit.
16. [AN] There could be potential to develop this facility in other destinations if it is successful, so treat it as a 'pilot' for possible growth strategies in the future and increased market share.
17. [AN] Marketing advantages, such as LT being visible in the local port should lead to a better reputation and higher sales.
18. [AN] The staffing costs may increase due to possible long opening hours, due to ships arriving at different times. Two full-time consultants may not be enough, so cost predictions may not be accurate.
19. [AN] The current business model relies on electronic communication. Will the system need to be adjusted? Will there be more need for paper resources, such as brochures, at extra cost leading to less profit?
20. [EVAL] Either conclusion rewardable as long as it is justified.
21. [EVAL] Success of Tour Hub will very much depend on the success of small group tours for cruise passengers.
22. [EVAL] Many of these 'new' customers might have booked online, so won't be additional business.
23. [EVAL] What other information may be useful?
24. [EVAL] Limitations of payback and ARR in this context.
25. [EVAL] In the short term, this could lead to more customers, but in the long term will everyone book tour arrangements on-line?
26. [EVAL] How secure is the relationship with the cruise company?
27. [EVAL] Might this divert Kanon and Tonia from their other management tasks?
28. [EVAL] How secure might international tourism prove to be over the next few years?
29. [EVAL] Do Kanon and Tonia want to change their business model away from the original, completely selling on-line objectives?