The Royal Hotel is being sold. The underwriter requests the pro forma statements showing future projected cash flows from the hotel owner. If the underwriter only uses this information, (a) which approach to valuation are they using? Please also (b) name and (c) briefly describe the other two approaches.

What differences if any do you think exist in the way that a professional hotelier would manager an American owned hotel in the United States or a European or Asian owned hotel in the United States?

What are differences in the way governments in other countries affect the management and operation of hotels in those countries?

A hotel runs several advertisements in the student newspaper of a local university, promoting its Sunday brunch menu. The ads increase the number of people visiting its restaurant, but only slightly.  Is the campaign necessarily a failure? What other goals might the hotel have for this advertising campaign? (Answer thoroughly.)

During the 1940s, military ships from the South Pacific accidentally introduced brown tree snakes from Australia to the island of Guam. These snakes eat birds, lizards, and small mammals in their native range of Australia. Since no species on Guam eats the snakes, their population has grown rapidly. Researchers estimate that two million tree snakes now inhabit the island. So far, 10 species of birds and 5 species of lizards have disappeared from Guam; small mammals have also decreased in abundance.

Use this information and your knowledge about biology to answer questions 1 – 5

1. Since the brown tree snake is a keystone species in Guam, it must also be a keystone species in Australia. True or false?

2. Native predators of birds on Guam likely decreased in abundance after brown tree snakes arrived. True or false?

3. If birds on Guam usually disperse seeds, brown tree snakes likely had a negative indirect effect on plants. True or false?  

4. Since more prey and fewer predators occur on Guam than in Australia, the density of brown tree snakes in Guam likely exceeds the density in Australia. True or false?

5. If some species of the now-extinct lizards used to eat bird eggs, brown tree snakes had a positive direct effect and a negative indirect effect on birds. True or false?

This is also the information provided

Pinetree Builders has the following data for its Rolling Hills Construction Project. The contract price of the project is $18,000,000. Complete the following table with the required information using the percentage of completion method.

Required

1.         Enter the appropriate amounts in the shaded cells above.

2.         Prepare the required journal entries for 2016, 2017 and 2018.

Indiana Co. began a construction project in 2021 with a contract price of $163 million to be received when the project is completed in 2023. During 2021, Indiana incurred $37 million of costs and estimates an additional $90 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed.

Suppose that, in 2022, Indiana incurred additional costs of $64 million and estimated an additional $51 million in costs to complete the project. Indiana (Do not round your percentage calculated):

A. Recognized $3.00 million loss on the project in 2022.

B. Recognized $3.18 million gross profit on the project in 2022.

C. Recognized $6.18 million gross profit on the project in 2022.

D. Recognized $3.18 million loss on the project in 2022.

Indiana Co. began a construction project in 2021 with a contract price of $163 million to be received when the project is completed in 2023. During 2021, Indiana incurred $39 million of costs and estimates an additional $81 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed.

In 2022, Indiana incurred additional costs of $59 million and estimated an additional $36 million in costs to complete the project. Indiana (Do not round your percentage calculated):

Multiple Choice

• Recognized $4.00 million gross profit on the project in 2022.

• Recognized $27.50 million gross profit on the project in 2022.

• Recognized $7.23 million gross profit on the project in 2022.

• Recognized $29.00 million gross profit on the project in 2022.

Here is the information that William has accumulated so far:

The Capital Budgeting Projects

He must choose one of the four capital budgeting projects listed below:  

Table 1

Table 1 shows the expected after-tax operating cash flows for each project. All projects are expected to have a 4 year life. The projects differ in size (the cost of the initial investment), and their cash flow patterns are different. They also differ in risk as indicated in the above table.

The capital budget is $22 million and the projects are mutually exclusive.

Capital Structures

Grand Island Hotel has the following capital structure, which is considered to be optimal:

Cost of Capital

William knows that in order to evaluate the projects he will have to determine the cost of capital for each of them. He has been given the following data, which he believes will be relevant to his task.

(1)The firm’s tax rate is 38%.

(2) Grand Island Hotel has issued a 9% semi-annual coupon bond with 15 years term to maturity. The current trading price is $960.

(3) The firm has issued some preferred stock which pays an annual 8.5% dividend of $100 par value, and the current market price is $98.

(4) The firm’s stock is currently selling for $88 per share. Its last dividend (D₀) was $4.5, and dividends are expected to grow at a constant rate of 7.5%. The current risk free return offered by Treasury security is 2.5%, and the market portfolio’s return is 8%. Grand Island Hotel has a beta of 2.1. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 3.9%.

(5) The firm adjusts its project WACC for risk by adding 1.8% to the overall WACC for high-risk projects and subtracting 2% for low-risk projects.

William knows that Grand Island Hotel executives have favored IRR in the past for making their capital budgeting decisions. His professor at Seattle U. said NPV was better than IRR. His textbook says that MIRR is also better than IRR. He is the new kid on the block and must be prepared to defend his recommendations.

First, however, William must finish the analysis and write his report. To help begin, he has formulated the following questions:

1. What is the firm’s cost of debt?

2. What is the cost of preferred stock for Grand Island Hotel?

3. Cost of common equity

(1) What is the estimated cost of common equity using the CAPM approach?

(2) What is the estimated cost of common equity using the DCF approach?

(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?

(4) What is the final estimate for r_s?

4. What is Grand Island Hotel’s overall WACC?

5. Do you think the firm should use the single overall WACC as the hurdle rate for each of its projects? Explain.

6. What is the WACC for each project? Place your numerical solutions in Table 2.

7. Calculate all relevant capital budgeting measures for each project, and place your numerical solutions in Table 2.

Table 2

35) The following aging information pertains to Jacobsen Co.'s accounts receivable at December 31, 2021:

During 2021, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen's December 31, 2020, allowance for uncollectible accounts was $40,000. Using the balance sheet approach, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2021?

A) $55,400.

B) $28,000.

C) $49,400.

D) $31,400.

Problem 1

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

                                                                          2020                           2021

Costs incurred during the year                    $ 450,000                  $1,100,000

Estimated costs to complete                       1,050,000                                  0

Billings during the year                                400,000                    1,400,000

Cash collections during the year                   300,000                    1,500,000

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:

1. Prepare all journal entries to record costs, billings, collections, and profit recognition for

    2020

2. Prepare all journal entries to record costs, billings, collections, profit recognition and     

     completion of the project for 2021

In 2014 Vail Resorts, Inc. (MTN), purchased Park City Mountain Resort for $182.5 million. Vail also announced it would invest another $115 million for resort upgrades, which included $50 million to link the Park City Mountain Resort to Vail's neighboring Canyons Resort. This would create one of the largest ski resorts in the United States, with over 7,000 acres of skiable terrain.

Interestingly, the opportunity to purchase Park City Mountain Resort arose because the previous owners missed the deadline to renew their 20-year lease of the property by two days. The unexpected option to purchase the resort led top management to engage in capital budgeting analysis to see if the massive expenditure necessary for the purchase and upgrade of the Park City Mountain Resort would pay off.

Instructions

1. What estimates would be needed for Vail to perform a net present value analysis of whether to buy the Park City Mountain Resort?

2. What uncertainties would Vail have to consider about these estimates?

3. What metrics are available to external stakeholders for use in assessing Vail's capital budgeting decisions?

Note: use proper citations when necessary.