The following facts are known: Cost of the expansion $2,000,000 The Manager is paid $90,000 per...

The following facts are known:

Cost of the expansion $2,000,000

The Manager is paid $90,000 per year. Compensation will not change due to the expansion

Property taxes will increase by $33,000 annually

The expansion will add 10 rooms and it is expected all 10 will be occupied by paying guests

The addition of the 10 guests each day is expected to add $750,000 of revenue annually

A garden and patio that was built last summer at a cost of $65,000 will be removed to make way for the expansion.

Additional cost of staff based on 10 occupied rooms is $250,000 annually

Additional cost of supplies and food based on 10 occupied rooms $80,000 annually

All expenses are expected to increase 3% annually. Due to competition revenue is expected to increase only 2% annually.

The useful life of the expansion is 8 years. Bradford uses a 9% discount rate.

Create an 8 year proforma cash flow statement for the expansion project (assume there are no income taxes)

Solutions

Expert Solution

Please refer below for cash flow statement for the expansion project.

Formula reference -

It assumed that property tax remain same for all 8 years.

jeff jeffy answered 1 year ago

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