Analysis Of Renting Space In Competitor College Accounting Essay

Category: Accounting

Executive Summary

This report is mainly focus on Ward our College offering the various courses . It is short term decision making process by identifying the selective option . Wardour college discovered in May 2010 that due to Cross-rail development project taking place next door, it will have to close the building course for 1 year.

Due to enforcement of closing of its building classroom for the year 2011. The purpose of the report focuses and examines the alternate options in the direction offering an assortment of unconventional course of action. Decision tree approaches is more relevant and give broader concept about identify the decision which more appropriate in terms of long run. By selecting various options an investigation has been made by using cash flow statement and budgeted income statement analysis.

Closing the building course for the year.

Transfer the building course to a competitive college for the period.

Transfer the building course to a new venue for a year.

Transfer one of the other courses to a new venue and re-locate the building the course within the college.

Introduction

As we know that report indicate the War dour College which is one of the subsidiary of a large training organisation. And it offers various courses including building course, plumbing, and electrics. Local businesses are the major customers who use the courses to train their staff. As it is already indicate that they are closing building course for 1 year, to see the variance analysis we are preparing budgeted income and cash flow statement for the year 2011. But apparently principle factor of the Ward our College is "classroom space" so for that reason they are thinking to shift to move for another premises or run the college dealing with smaller courses. Budgets are quantitative business plans. Variance analysis report may indicate the needs for special investigation. By making a cash flow statement and income statement we will derive the floe of the cash for current and upcoming year.

It is pivotal for every business to use an relevant cost method for the financial purpose and the results has been precise against the possible fatalities and gains of student revenue in ensuing periods by using a 'balanced scorecard approach'

Currently War dour College is generally generating profit of $360,286 and also $ 460,286 holding free cash and that can be ascribed to the building course (Appendices 1)

Although the analysis shows that if the building course we are dropping off these figure would be fall to ($21040) and ($93634) respectively at the end of the 2011.

Based on the figures it propose the income of the course to a competitive college could be afforded up to maximum rental of the approximately of $400,000 per year.

However there are other factors to consider which include Marketing, Management theory.

Method of Analysis

The method of analysis is pertinent approach to draw up the budgeted income statements of income for 2009 and 2010 using the relevant information provided. By adopting those figures we are preparing a budgeted income statement and cash flow 2011 by using a relevant Excel spreadsheet. So from that analysis we can identify the relevant cost approach and revenue generating , profit generating options. So therefore there are mainly four alternative options we are using to analyze the variance analysis which reflects the potential advantages of variance analysis. To make more efficient I have decision tree approach to evaluate the methods effectively . It gives straight forward direction what are profit / loss?.

As it already mention we are resemble to use budgeted income statement and cash flow statement for the relevant years. So on initial stage it is essential to understand the meaning and magnitude of the budget income statement .The calculations are used on the basis of the financial analysis. However, the instantaneous financial consequences of alternative options are only the part of the assignment we have keep the consideration of long term impact of the various options we are choosing and what will be the outcome by adopting selective options in buoyant way and which is directly connected with the management theory consisting of the marketing, reputation, stability and quality control.

There are certain implications which identify the scenario and environment of the Wardour College options

Analysis of Closing down the building course for one year

Effect on finance

By following the (i) options there will be Net loss of (93000) from financial aspect because by choosing these options there is no scope of generating revenue. As it is clearly stated that the substantial amount of revenue we obtaining from the building course. Refer to spreadsheet Appendix....

Effects on students

Students and their employers or sponsors paying money in the form of the fees. So their money is going to be transformed in the form of the revenue for the college. So from cash flow statement we can see that college will loose (93000) by closing down the building course.College is generating large proportion of revenue from the building course rather than others. Employers and students may find better jobs and colleges permanently for better prospect.

Effects on staff

While they close the building course for one year, staff will loose their jobs and get unemployed. As result college is losing qualitative staff, staff they won't wait until they re-open after one year. It can be difficult challenge for them , from marketing point of view there is a keen competition going around to get sustainable position in the market. Without staff and students there is no existence of the business.

Effects on management

Management are the essential elements for the college. They directing the college in the way of forming the rules . By choosing the closing down building option they may get frustrated and demotivated because fear of losing the job. To re-open the building it will take one year and even re-establishing the course.

Effects on Marketing

Marketing is all about perception , it brings money in the organisation . As they are not gaining any revenue so it will make the situation bit critical to spend the money behind the marketing. And even if we consider the communication process we need to parties, one sender and other receiver . Anyhow there will be no communication power between the customers and college.It also depend upon the customer perception and stability of the customer .

Effects on Quality

Quality is pivotal elements require to run the business , if the building is closing down it means the quality of the college is declining . It is an essential elements require to boost up your business name and position in the market. Even though perceived quality of the college may be get affected. Perception of the college will be unreliable?

Quality and reputation they are inter-related with each other, work simultaneously. As quality emerges only when the performance of the college is effective and efficient. Quality and reputation consider as an on going process . There will be uncertain risk of factor may carries alnogwith while closing down the building course.

ANALYSIS OF RENTING SPACE IN COMPETITOR COLLEGE

Effects on finance

From the cash flow statement 2011 we are still holding free cash of $460,000. If we consider the location factor it is 12 miles away located from Wardour college, so unemployed students will not be able to attend the course due to travelling from one place to another. By chance if they attend they are willingly need to pay the additional cost which include the travel cost and many more. A s it is already stated they are unemployed seeking for the job so they might not afford to pay incremental cost which are occurring. Anyway they are not employed students so there is high probabilities of losing them and even revenue.

Effects on students

Employed students will remain unchanged. Unemployed students will ot attend the course due to far location. They are real stakeholder who empower money in the college to scuttle. They may never come back to the college and might get attracted towards the competitor college.

Effects on Staff

The revenue from the unemployed students is going to be nil.So staff might have a fear of not getting wages on a specific period of time. If the flow of the money does not get circulate in the correct form so there will be disturbance , so it might converted into the dissatisfaction form staff point of view if they not paid on accurate time. From the students fees college is generating revenue and making profit , so adversely it will affect on their overall income . So they might have to cut down staff hours, incentives, bonus schemes in order to minimise the cost. Staff might get attracted towards the competitor and as a result they get ready to work with them by offering them high wages, incentives.

Effect on Management

Management of Wardour College will certainly lose their jobs because of the competitive college , they have their own staff who can represent the college identity.

Effect on Marketing

It is hard to do marketing for competitive course place because it is difficult to maintain the current level of quality control. Quality control is very can be in the form of the feasibility. Quality aspect is very important to determine and to maintain it overall . But if the quality gets spoil in the terms of the performance. To sustainable position in the market they have offer qualitative lectures. The competitor might offer the course in more effective way to enhance the market and to gain goodwill.

Effect on Reputation

Reputation will amplify from the opponent college characteristic because they are getting more revenue by joining the Wardour College. College will attract students to join Wardour College and later on they will get trsnsfer to a competitive place.

(iii) RENTING ALTERNATIVE LOCAL ACCOMMODATION

Effect on finance

Finance is a like backbone of the business. As is already indicate in cash flow statement in 2011 that $460,000 we are holding free cash so that free cash we can utilize at the rear renting the new premises, $91,000 are allocated for the rent. Even still we can spend that money behind marketing, recruitment, training, selection purpose.

Effect on students

Students will remain unchanged whether they are employed or not .Another possibilities is that students would not be able to go to the competitor college because it is nearly located with the Wardour College , even it will escape the transportation cost. By recruiting more students we can utilise the same amount of money behind the marketing.

Effects on staff

Staff will get moralised by choosing these options because we are renting premises somewhere locally so they don't need look for another job. They feel bit secure about their job. If they are thinking to expand the course they still have substantial part of capital to expend on it.

Effects on Management

Same management staff will use existing offices which is going to be transferred to new premises. Management staff will get same position and salary but they might get more incentive and bonus if the college course is going to be extend.

Effects on quality

Quality is the main aspect fro recruitment purpose. Quality words define a specification for a performance which is delivered to students in academic way. Quality is now an important concept in marketing and in production. It is believed that quality products need to meet the customer requirements. Modern attempts to define a quality usually resort something like 'Fitness for purpose'/ 'meeting customer needs'

Feigenbaum identified the cost as follows.

Prevention cost: cost can be low. Arrange manufacturing and train personnel so that production is right in first time.

Appraisal cost: it carries the cost of inspection and components of the product.

Internal failure cost: It is quite expensive in terms of the measures.

External failure cost: cost can be very high.

Effects on Reputation

It is challenging job for new business to enter in the market where there is fierce competition, it carries a burden of the risk for new business to boost their name and the image in the market, and it is unfamiliar in the market.

ANALYSIS OF MOVING OTHER COURSES

The options of moving building into the one of the other course rooms and re-locating that course should be considered and a cost / benefit appearance carried out.

COST BENEFIT ANALYSIS OF OPTION OF CLOSING DOWN COURSE FOR ONE YEAR

Ward our College is subsidiary of a large officialdom offers courses on building, work, plumbing, and electrics. As its previously state on Wardour College Budgeted Income Statement 2009.But although due to critical dynamic of the college is the "space" factor. We have to use the relevant alternative options which are clearly stated in the cash flow statement. As the building course is generating income of $614,400 as per cash flow forecast and overall income for the building course it generate the revenue of the $1428,000. So as we follow the first options which is closing down the building course for one year what would be the implications?

Affirmative profit and proceeds generating options?

Competitive advantage for the enmity college?

Building course is closed for one year, but yet liable to pay the rent on the basis of contract and agreement?

How much capital do we need to move to other buildings?

What are the pros and cons by changing the location?

Fear of losing the keen potential students?

From quality aspect point of view fear of losing the teachers and management?

As from the above implications it is clear that by closing the building course there is no increment in profit in terms of the return on capital employed. Precisely expenditure is going high without gaining any substantial part of the profit because the rent is going high by charging 17.5%. By determining the cost concept for the college as the scenario of the college indicate that the critical factor is the "space" and analyzing how much revenue we getting or losing? .But don't forget we have to take under some considerations through the marketing prospective and management theory. In spite closing the building course there is a tendency of losing existing students revenue in long term. But by moving the competitive college location still we are utilizing more space , more cash even we are utilizing and still we are holding some free cash and the same free hold cash we can consume that money behind the marketing prospective, management, to sustain the quality aspect and reputation. Even though the problem is not the cost but they might lose competitive lecturer, students and their income , precisely they are money investor in the form of the students. This will make a huge impact of deteriorating the quality, goodwill and reputation of the company.

Financial (93000)

Finance is the fonts where the cash is utilised and gain in the term of the profit in instruct to scamper the business. The objective of the financial control is to create optimal liquidity thus enabling efficient flow of the resources through the value adding process from the concept of the liberation and imbursement. As (i) options are closing down the building course. Being realistic about the finance we can see that we are not generating any cash profit in terms of the revenue so there is no scope for the financial aspect to run the college. Without cash there is no flow of exchange.

Management

Management is a process that used to accomplish organizational goals that is a process which is used to achieve what an organization wants to achieve . An organization could be a business , a school, a college, a group of volunteers, or any government entity. Managers are the people to whom this management task is assigned, and it is generally thought that they achieve the desired goals through the key functions of

Planning

Organizing

Directing

Controlling (Nickles, William G, McHugh, James M. (1987)

Even management also deals with different aspect such as 1.

Behavioural management thought

Contemporary management thought

Behavioural Management Thought

It is a classical management theorists were so machine oriented that the behavioralists began to develop their thinking. It's began from the management point of view like social and psychological perspective. As far as

building concern it is closing down so there is no revenue generating in terms of the profit so it is highly signifying that no scope for the finance to move on further but the management is not gaining any money in terms of the wages and salary because the most part of substantial income we are getting form the building course. So it will adversely make an negative impact on the aspect of the quality and reputation. No supplementary conscription in the building course simultaneously no more hiring the premises.

Contemporary Management Thought

A system is a set of complementary element that function as a unit for specific purpose. Systems theorists believes that all parts of the organization must be related and that managers from such part must work together for the benefit of the organization. Because of this relationship , what happens in one part of the organisation influences and affect all parts of the organization.

Another contemporary approach to managing involves contingency theories and it states the manager should use techniques that are the most relevant appropriate for the situation and the people involved. (Pierce, Jon L, Dunham, Randall B.(1990)

Marketing

Marketing is all about perception. Marketing decision based on the interdependent between marketing and finance functions in

the organizations.( Sharan Jagpal, Shiren Jagpal 2008). Marketing control research has involved either the development of output-oriented financial controls or the financial analysis controls affect performance. This work on marketing control is limited

(i)It is mainly focused on primarily on the control of marketing plans and activities

(ii) Failures to capture all controls operating within the marketing unit

(iii) Environmental conditions influence the use of the both moderate the effects of the controls

(iv)It ignores the behavioural and psychological impact of the pedals and to surmount the precincts a theory of integrating environmental context, controls and the consequences of controls is mainly proposed. (Bernard J. Jaworski 1988)

Sharan Jagpal , Shiren Jagpal,(2008) Fusion for Profit : How Marketing and Finance Can Work Together New York: Oxford University Press.

(ii) Alternative venue for competitive college

As we compare to the second option which is alternative venue for competitive college shown on cash flow forecast 2011, it's already mention on Appendices

By going with the options what are the implications for changing the alternate venue for competitive college?

What are the gain and loss?

Will student come back by changing the location of the college?

What can be the incremental costs whilst considering the business aspects?

What are the variations of business analysis?

What is the incremental cost by moving to competitive college location?

By comparing the second options which is contender college it is clearly cite that competitive college is located 12 miles away from the War dour College premises and no unemployed students would attend the relocated course but the number of the employed students will remain unchanged. Above we take for granted that what are the implications by choosing these options in elongated run. From unemployed students we are not getting any revenue because there is a high predisposition of losing the unemployed students because they are unemployed so they don't have any spare money to travel for any other location. Suppose the venue is somewhere like "Hounslow" so its too far from Central London to travel so it carry hidden cost and also carry incremental cost. So in long run there is tendency of losing the existing students and even teachers due to incongruous location choose by the college. So overall ratio of the students is slashing down by changing the location we are losing the unemployed students, teachers, management staff but apparently they were loyal to college but if they go to competitive college there is trepidation of revealing the confidentiality and loopholes of the college it could be the manipulative situation. So it will spoil the image of the college in terms of the quality and reputation. But other aspect we can consider is mention below

Financial

It is pivotal aspect of every business; Finance is like blood of every business. By choosing these options we can easily determine that the financial position of the company is going to be feeble because they are losing revenue in terms of the profit. Finance and management have co-relation with each other. Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Beside financial management covers the process of identifying the management risks.

Strong financial management in the business arena requires managers to be able to:

Interpret financial reports including income statements, Profit and Loss , Cash flow statements and balance sheet statements.

Improve the allocation of the working capital within business enterprise.

Review the fine tune financial budgeting, revenue and cost forecasting.

Look at the funding options for business expansion including both long term and short term financing.

Apply critical financial decision making technique to assess whether to proceed within investment.

Understand the variations frameworks for the business portfolios and intangible assets.

Economy Watch (2010) Economy , Investment & Finance Reports: Stanley St. Labs

Management

Management are key assets of the college , as they are managing all administration , academic and overall responsibilities of the college. But if we are choosing the (ii) option which is alternative competitive college so we have to hire a new management staff because we are changing the location which might not suitable for management staff so they might leave their job because of changing in working environment and it might be costly for them to travel . And even competitive college might offers their own existing staff in order to maintain their level of competency and their standard of delivering service in the terms of the satisfaction.

Marketing

It is quite essential for every business to follow market research steps in order to start a new business. I t can be described as the systematic collection and analysis of data about the prominent attributes in the market such as consumer, behaviour, competition, necessary reforms etc. It is continuous process where the company collect the data and interprets it to bring about the necessary changes in company policies and strategies. Market Research allows the company study the relationship between the consumer and company ie consumer in the form of the students. Good market research allow the company to determine whether it has been able to satisfy its customer .It provides the company with crucial information about the various factors which affect the business .It helps company to formulate plans, take necessary measures and evaluate its performance. It is also helpful for the company to devise more effective strategies. It helps company to identify the opportunities available in the market. (Buzzle 2010)

Quality

Quality represents a movement which is revolutionizing the way business is done in the industrialised world. Using points of the agreement between writings of the quality gurus , this paper develop a definition of TQM to serve a reference point for those interested in doing research in this important topic.

(Willaim J Miller ,1996)

"Quality is not achieved by doing different things, but it is achieved by doing things differently". (Quality Digest E-Store 2001)

As by adopting second options to move competitive college its frankly gives an pessimistic crash on the college in stipulations of the excellence. Because there is a major tendency of losing the keen and potential students and teachers so it will deteriorate the quality of the college, as we know that the space is the critical factor for the college.

Reputation

Reputation is an gaining of goodwill whilst running the business . It is tough challenge to accept it because it create market awareness brings money in terms of the profit. It also indicates the return on investment of the organisation. But to create a new reputation is like to carry burden of risk and liability because there are so many keen competitors and cut throat competition is going on. To sustain in the market for the future aspect is essential to keep the reputation.

COST BENEFIT ANALYSIS OF RENTING ALTERNATIVE LOCAL ACCOMODATION

According to my point of view the (iii) options sound bit realistic because it gaining concept rather than losing concept. From business prospective it is foremost track of achievement for every business is how to gain money /cash and get sustainable position in the market .It is more beneficial to choose this options to get more revenue from the students. Because both employed and unemployed students are attending these course so it is obvious that we are getting more amount of revenue in order to run the business. Because the location we have chosen is local so same amount of the rent we are paying off by running the course. Due to the same area of location there is high tendency of getting revenue. So we can keep the existing students, teachers, and management staff. Foe better prospect it is reliable to rent the room somewhere local and offer the same of charges. It is more beneficial because it is local area for everyone so it will save the time and money even so we can utilize the substantial part of the revenue by spending that money in the form "rent charges" to local authority . So in that we can keep the quality and reputation of the college. As it already mention rent cost is $310,000 , so they are going to pay the rent for hiring a new accommodation. It is already highlighted under overhead cost in balance sheet. So they hold all the existing students, management staff, teachers as well as. Even the critical factor is 'small place' moving to another place in local it is tough for other course which is plumbing, electrical. But you have enough budgets to spend for marketing, finance etc.

Financial

Finance is the main source where we generate and utilize the cash. As it already mention on the income statement that how much free cash we are holding? So any free cash which we are holding we can utilize that amount in renting / hiring local accommodation. College needs to transfer the same employee , staff , management staff even so they don't need to spend the money behind the advertising campaign.

Management

. Management is responsible for the managing the organisations in order to get better outcome. Management enables all the persons in the organisation to contribute it most effectively to its purpose in the performance of the duties. It promotes individual development and encourage mutual confidence and make desirable understanding between employees and employer. Management utilize the all the physical and human resource productively . By choosing these options it indicate that it gives maximum results with the minimum cost because we have chosen a local accommodation which is our one of the main competitive advantage..

Quality

By renting / hiring a local accommodation it is beneficial to everyone. By adopting these options we are gaining the status in terms of the eminence. There is no fright of losing qualitative teachers, students as well as. As quality aspect is an pivotal for every business , and quality can be measures in the terms of the measurement of specific purpose it has to deliver with effectively.

Reputation

Reputation is an mirror from which it can reflect the quality and image of the business. Quality bring reputation. Reputation of a company is its important and valuable asset. A positive one may bring many benefits to a company , when a negative one may significantly harm it. A company reputation is closely ties up with its stakeholders emotional beliefs about it.

Marketing

Marketing is a communication channel passing all the information about the new business in order to make aware about the new products or new organisation. By adopting these options by hiring a new accommodation in local area so management don't have to squander the any inequitable amount behind the marketing to make it trendy.

(iv) COST BENEFIT ANALYSIS OF MOVING OTHER COURSES

As it's clearly mention that the plumbing course, electrics course , but in plumbing course the students are 30 and revenue we are getting is $ 589, 680, while electric course attribute 25 students and generating revenue of 528,000. But it will require more revenue behind moving the plumbing and electrics course because we need labour for mobility . Equipment and tools need to replace form one place to another, even electrics course need to move from one place to another it acquire more working capital because we need to hire labour, new equipment , technician . Still we have enough budgets to spend on it. But among all of the courses there is more tendency of earning revenue in building courses rather than the other course. It is irrelevant to keep the courses like plumbing , electrics because it involves time period , capital. We have to consider the following criteria which is

Financial

The concept of finance theory involves studying the various ways by which businesses and individuals raise money, as well as how objects while considering the risk factors associated with them. It also include the study of money and other assets, managing and profiling project risks, control and management of assets and the money. In simple terms 'financing' means provision and allocation of funds for a particular business module or project.. (Maps of the world finance 1999)

To measure the performance of college it is reliable to use balance scorecard approach for making relevant decision.

Adapted from Robert S. Kaplan and David P. Norton, "Using the Balanced Scorecard as a Strategic Managements'

System," Harvard Business Review

Currently Wardour College is generally generating profit of $360,286 and also $ 460,286 holding free cash and that can be ascribed to the building course (Appendices 1)

Although the analysis shows that if the building course we are dropping off these figure would be fall to ($21040) and ($93634) respectively at the end of the 2011.

Based on the figures it propose the income of the course to a competitive college could be afforded up to maximum rental of the approximately of $400,000 per year.

However there are other factors to consider which include Marketing , Management theory .

Summary of Analysis

It indicates the scenario of the college by using the different options. Basically there are four option given for the cost benefit analysis , which is mention below.

COST BENEFIT ANALYSIS OF OPTION OF CLOSING DOWN COURSE FOR ONE YEAR

As Wardour College Cash Flow Statement 2011 shows indicate overall revenue which is generating from the building course is $ 721,920 from employed and un employed students. So if we close the building course we are getting negative figures (95,283) so it reflects that we are losing major contribution , although we are paying the rent because it is on contract base. But moving to another college is another aspect by paying the rent of lets say $4000. On other hand fear of losing the quality and reputation of the college. According the business rules once you lay off , risk is higher , hard to obtain the same quality and reputation for the college.

COST BENEFIT ANALYSIS OF RENTING SPACE IN COMPETITOR COLLEGE

By transferring to the competitive college it is critical because we are losing the control on the management staff, students, and teachers. And their is fierce competition in the market, so they can take improvement to win the market spot . Unemployed students are would not focus the college because it is situated 12 miles away from the Wardour College . Primarily on the one hand we lose our existing students because of the competitive location . According to income

statement it suggest that there is a 8 number of unemployed students doing the building course. But still we holding free cash of $369,358, we can utilize that amount in the form of the rent of premises so unemployed students will join the course. And staff including management, teachers, students will remain unchanged because they don't have to pay any incremental cost like travel cost etc.

COST BENEFIT ANALYSIS OF RENTING ALTERNATIVE LOCAL ACCOMMODATION

These approach is reliable because if you rent the premises locally we have many advantages like unemployed students attend the building course , staff will remain same. In balance sheet the rent cost is $310,000 and in the income budget statement 2011 shows the free cash hold which is $ so its better and realistic options to choose because we can spend that free cash behind the rent, rather closing down the building .

COST BENEFIT ANALYSIS OF MOVING OTHER COURSES

College offers different courses including building, plumbing, and electrics. As far as we know that the from the building course we are generating large amount of the revenue. To move the plumbing course, electric course we need to hire labour for that you have to pay labour cost. Need to purchase the tools and equipment for the maintenance. So indirectly it will add incremental cost in overall expenses.

CONCLUSIONS

By analysing the various methods we derived with the different assumption, some assumptions are realistic and approachable. By determining the Budget income for 2009 up to 2011 we have seen variances which reflect the outcome. As it clearly mention that the 'space' is critical factor of the college. A rent charge is increased by 17.5% and net profit is also reduced. It also indicate the potential advantage of variance analysis. Pre-determined cost should be incurred under the normal efficient operating conditions which is standard cost. Sales variances consider the sale price and volumes by moving the college from one place to another . Even standard cost are based on the no. Of students and price per unit. Actual performance is compared to the budget variance ant it will allowed a detailed of understanding of exactly which costs and revenue are responsible for change in performance. Different options has already given to investigate the further. Every option which is stated distribute different figures which is relevant. Income Statement is an accounting of income and expenses that indicates a firm's net profit or loss over a certain period of time, usually one year. (Wiki answers 2010) <http://wiki.answers.com/Q/What_is_a_income_statement>

[Assessed on 27th July 2010]

Recommendations

It is best approach to recommend the selective options which is useful for college and even beneficial to some extent. According to my point of view the most appropriate options is (iii) options hiring a place at locally because there is gain without the loss. After analysing and investigating the cash flow statement and budgeted income statement for 2011 there is some amount of free cash we are holding to spend on behind marketing, finance , management. But to some extent it is irrelevant to spend behind marketing because it already exists in the market so it is just the matter of renting the room locally. Rest of the three are irrelevant according to my point of view. After investigating all the variances and outcome form the alternative options we examine that (iii) will be more beneficial in terms of the long term