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The Point Land Deal

In:

Submitted By destiny888
Words 2210
Pages 9
Background:
RBH builds single-family and higher-density homes, such as townhouses and condominiums.
RBH often had to make significant price concessions and construction costs were continuing to rise.
The stock price had declined almost 50% from the all-time peak in 2005.
Because the homebuilding started slowdown in early 2006, so finances were expected to be much tighter in 2007.
Harry, the president resisted the idea of downsizing of the division in 2007 and wanted to keep employee team intact.
RBH spends considerable effort in preparing formal land acquisition proposal, which examines the proposed building project from housing development type, construction challenges and costs, marketing prospects, and environmental concern.
The Platinum Pointe deal is a large one that would bring in considerable revenue and profits in the 2008-2011 time periods.

Issues Identified:
1) The first issue of the case is whether Harry Hepburn, the president of Southern California Division of Robinson Brothers Homes should make the projection on the specific project more optimistic or not. By making the revenue forecasts more optimistic, the most likely outcome is that the project will be undertaken and his team of employees will keep their position. Otherwise, at the current estimated return projections, the project is expected to be declined, and Harry’s team will be partially laid off in accordance with the Robinson Brothers Homes plan on cutting costs as the company faces the slowing down market and decreased profitability.

2) The second issue of the case is to evaluate what can be done to either decrease the required IRR benchmark related to this project or to increase the expected IRR of the project.

Due to decreasing margins on their recent construction projects RBH needs a project to bring their revenues and profits up for the upcoming years. RBH’s Southern

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