Read the Health Cruises Case and submit answers to the following questions.
1. What is the minimum number of passengers Health Cruises must sign up by November 20th to break even? [show your calculations]
Considering that an average ticket price is $1500 and the cost per passenger is $200, each sold ticket generates $1,300 of the positive cash flow. Since $295,000 of the initial capital had been spent by November 14th, the following minimum number of passengers must sign up in order for Health Cruises to break even provided no more money is invested:
Minimum passengers to break even = $295,000 / $1,300 = 227.
2. Should Health Cruises go ahead with the cruise since 200 people have signed up by …show more content…
The most desirable staterooms cost $2,200. Mary learned of the cruise by reading the travel section of her Sunday newspaper on October 16. On that date, the Pittsford and LaRue Advertising Agency placed promotional notices for the cruise in several major metropolitan newspapers. Mary was fascinated by the idea of combining therapy sessions with swimming, movies, and an elegant atmosphere.
Pittsford and LaRue account executive Carolyn Sukhan originally estimated that 300 people would sign up for the cruise after reading the October 16 ads, but as of November 14 only 200 had done so. Isom and Health Cruises, Inc. faced an important decision. “Here’s the situation as I see,” explained a disturbed Ms. Isom at the Health Cruises board meeting. “We’ve already paid out more than a quarter of a million to get this cruise rolling. It’s going to cost us roughly $200 per passenger for the two weeks, mostly for food. Pittsford and LaRue predicted that 300 people would respond to the advertising campaign, but we’ve only got 200. I see three basic options: (1) we cancel the cruise and take our losses; (2) we run the cruise with the 200 and a few more that will trickle in over the next month, or (3) we shell some more money and hope that we will pull in more people. My recommendation to the board is that we try to recruit more passengers. There are simply too many empty rooms on that ship. Each one costs us a bundle.”
At this point, Carolyn Sukhan