Contents

• This report is based on the following case study -
• Tanglin Club offers tennis courts and other sporting facilities to its members.
• The club has 2,000 members. Revenue is derived from annual membership
• fees and hourly court fees.
• The annual membership fees are:
• Individual $45
• Student 30
• Family 100
• Approximately half the members are “family” and the remaining memberships
• are split equally between individuals and students. For the next two financial
• years, the hourly court fees are $8 and $12 depending on the season and
• time of day (prime versus non-prime time). The club has 10 courts and these
• courts are available for 12 hours per day, from 9am to 9 pm.
• The peak tennis season runs from October to April (181 days). During this
• period, court usage averages from 90% to 100% of capacity during prime time
• (5pm to 9pm) and from 50% to 60% of capacity during the remaining hours
• (9am to 4pm). Daily court usage during the off-peak season averages from
• 20% to 40% of capacity, and is charged at $6 per hour. All of Tanglin Club's
• memberships expire at the end of September. A substantial amount of the
• cash receipts is collected during the early part of the tennis season due to
• renewal of annual membership fees and heavy court usage. However, cash
• receipts are not as large in the off-peak months.
• For the start of the new financial year on 1 October 2015, Tanglin Club is
• considering introducing a new membership and fee structure in an attempt to
• improve its cash flow planning. Under the new membership plan, only an
• annual membership fee would be charged, rather than a membership fee plus
• hourly court fees. There are two classes of membership, with annual fees as
• follows:
• Individual $300
• Family 500
• The annual fee would be collected in advance as soon as the membership
• application is completed. Members would be allowed to use the tennis courts
• as often as they wish during the year under the new plan. All future
• memberships would be sold under these new terms. A special promotional
• campaign to attract new members and to encourage current members to
• remain with the club would be instituted. The annual fees for individual and
• family membership would be reduced to $250 and $450 respectively if
• members pay for their yearly memberships in advance during the two-month
• promotional campaign.
• Tanglin Club’s management estimates that 70% of the current members will
• continue with the club, and student members would convert to individual
• membership. The most active members (45% of the current members) would
• pay the annual fee in advance and receive the special fee reduction, while the
• remaining members who continue would renew membership in October.
• Those members who play 5 times or less during the year are not considered
• active and would not re-join. Management estimates that the loss of members
• would be offset fully by new members within 6 months of instituting the new
• plan. These new members would pay a proportional amount of the annual fee
• on joining. Furthermore, many of the new members would be individuals who
• would play during non-prime time. Management estimates that adequate court
• time will be available for all members under the new plan.
• The new membership plan if adopted would be instituted at the start of the
• new financial year (1 October 2015), i.e. the start of the tennis season. The
• special promotional campaign would be conducted during August and
• September, prior to the start of the new financial year.

Description

This report is based on the following requirement -
You have been engaged to help Tanglin Club evaluate its new fee structure.
Write a report to the Managing Director of Tanglin Club dealing with the
following issues:
a) Will the new membership plan and fee structure improve Tanglin Club's
cash flow? Explain your answer.
b) Identify the key factors that Tanglin Club must consider in its evaluation.
c) Explain the type of financial analysis Tanglin Club should prepare in order
to make a complete evaluation.
d) Explain how Tanglin Club's cash management practices may differ from
the present if new membership plan and fee structures are adopted.