gement at Mirage wants to do is to build a new resort that will compete directly with one of the company's highly performing existing resorts.
The expansion and development policy followed at Mirage Resorts calls for the company to continually seek new opportunities for the development of new hotels and casinos. A key element of this policy is to seek opportunities in those states where gaming is newly legalized. Over the past decade, the legalization of gaming has spread rapidly among those states that previously prohibited the activity.
The development of a new resort property by Mirage Resorts typically requires approximately two years from the commencement of construction to the opening of the resort. During the construction period, the company ties up a major amount of capital funds before the property becomes an income producing resort.
Analysis of the Relationship Between Expansion and Development At Mirage Resorts and the Company's Operational Performance
To assess the relationship between expansion and development activities at Mirage Resorts and the company's operational performance, the appropriate variables for inclusion in such analysis must be selected. Operational performance could be measured according to a number of variables, including net revenues, net cash flow, before-federal income tax and extraordinary items profit, and net profit. At the end of the day, one might hold that net profit is the best measure of operational performance because net profit is the ultimate of the increase in value for the company's shareholders. When assessing the relationship between operational performance and expansion and development activities at the company, however, a more valid assessment of the relationship may be obtained using before-federal income tax and extraordinary items profit as a representation of operational performance. Federal income tax rates are subject to change. Thus, the use of after-tax pr...