AdventureParks Ltd is evaluating the construction of a new theme park. The theme park would cost $ 495 ​million, but would operate for 20 years. AdvertureParks expects annual cash flows from operating the theme park to be $ 70.6 million and its cost of capital is 12.0 %.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should AdventureParks go ahead with the​ purchase?

d. How far off could​ AdventureParks' cost of capital estimate be before your purchase decision would​ change?

Otay Lakes Park is a private camping ground near the Mount Miguel Recreation Area. It has compiled the following financial information as of December 31, 2017.

Instructions

(a)  

Determine Otay Lakes Park's net income for 2017.

(b)  

Prepare a retained earnings statement and a balance sheet for Otay Lakes Park as of December 31, 2017.

(c)  

Upon seeing this income statement, Walt Jones, the campground manager, immediately concluded, “The general store is more trouble than it is worth—let's get rid of it.” The marketing director isn't so sure this is a good idea. What do you think?

5. In detail, summarize what the information that a five-number summary for the variable Per Capita Income provides for the City of Chicago.

There is a hotel in Imatra (Finland) which is very close to Russian border. The
demand function of Finnish consumers for this hotel is Q = 1000 - P. The demand
function of Russian consumers for this hotel would be Q = 1400 - P if they had not
travel to Imatra, but they have to travel and cost of travelling is 200. MC of hotel is
200 for one visitor. Find the difference of profits with price discrimination and without
price discrimination.

Central Adventures

Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties. She is asking you (her accountant) for some advice on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Funland, Waterworld, and Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Park managers meet with the CEO at least once annually to review their performance, where each park manager’s performance is measured by their park’s return on investment (ROI). The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital.

Fatima’s first difficulty is with the Funland park. Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood roller coaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance and insurance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction. Fatima (doing a quick mental calculation) saw that the investment had a payback period of eight years—much shorter than the life of the roller coaster—and is perplexed at Janet’s decision.

The second dilemma concerns the Waterworld park. Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same base pay rate, which he says he will accept if his performance is not appropriately acknowledged. Fatima needs to look at the relative performance across parks to determine how to proceed with David.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Included in the ‘Fixed COGS’ for Treetops is a $86,000 mortgage payment on the land and 9,351,510closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

The ‘Selling and administrative costs’ are all incurred directly by each park, and are determined at the beginning of each year (that is, they do not change with the number of tickets sold). In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a cost of capital of 12 percent (and Fatima uses the cost of capital as their required rate of return) and are subject to 18% income taxes.

Fatima needs to evaluate this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

Required:

Write your response in the form of a 1-2 page memo to Fatima Hopkins, from the perspective of the company accountant. Be sure to include all your financial analyses, clearly showing your calculations, to support your conclusions. Be sure to include the following points in your memo, and provide the appropriate financial analysis(es) to support your conclusions.

a.     Create a segmented income statement for Central Adventures.

b.     Calculate the current annual ROI, residual income and EVA for the three parks.

c.     Evaluate Janet Lieberman’s (the Funland park manager) decision. Explain why it was/was not in Central Adventure’s overall best interest for Funland to reject the new rollercoaster.

Mr. Vaughn, a 27-year-old man, is hiking in the woods near his home in the American Midwest. He feels a sharp stinging sensation on his left ankle. As he looks down he sees a dark colored snake moving off the trail into the woods. Mr. Vaughn calls the ED at the local hospital. He tells the nurse what has happened. What should the nurse tell Mr. Vaughn? What actions should the nurse take at this time? Mr. Vaughn is brought to the ED via the paramedics along with a park ranger. The park ranger used the patient's description of the snake and determined that it was a pit viper. What is the priority of care for Mr. Vaughn? When the Mr. Vaughn's wounds are reassessed, the nurse notes heavy bleeding from the puncture site. What should the nurse's next actions be? Why?

Hubbart approach

The Pimlico Hotel is a 200-room hotel and it is projected to cost $15 million including land, building, equipment, and furniture and working capital. The hotel is financed with a $10 million loan at 8% interest rate. The owner’s investment in the property is $5 million. The owners desire a 16% return on investment. The hotel projects 80% occupancy rate and it will be open 365 days a year. The income tax rate is 40%. Room’s department direct expenses

are $10 per room sold.

The following are the fixed and undistributed expenses.

Depreciation expense $300,000

Amortization expense 100,000

Rent Expense 130,000

Administration and general 300,000

Marketing 200,000

Utility costs 200,000

Property Operations and Maintenance 120,000

Insurance 50,000

Property taxes 200,000

Other operated departments’ Income/losses

Food 150,000

Beverage 50,000

Telephone (50,000)

Additional information

Double occupancy 40%

Rate difference (spread) between double and single is $10.

Using the information above find the ADR and determine double rate and single rate for the Pimlico Hotel.

ABC inc. has 3 divisions which produced the following results last year:

Division A: Historical Cost of Investment = $750k / Operating Income $92250
Division B: Historical Cost of Investment = $720k / Operating Income $90k
Division C: Historical Cost of Investment = $200k / Operating income $26k

a) caclulate each divisions ROI and RI, assume 10% cost of capital
b) Assume that the carrying amonut of the investments is half the historical cost, calculate each divisions ROI and RI, assuming a 10% cost of capital, using the carrying amount.
c) Which measure, ROI or RI, is a better indicator of the performance of each division?

Please show work.

4. Jellystone National Park is located 10 minutes away from city A and 20 minutes away from city B. Cities A and B have 200; 000 inhabitants each, and residents in both cities have the same income and preferences for national parks. Assume that the cost for an individual to go to a national park is represented by the cost of the time it takes her to get into the park. Also assume that the cost of time for individuals in cities A and B is $:50 per minute. You observe that each inhabitant of city A goes to Jellystone 10 times a year, while each inhabitant of city B goes only 5 times a year. Assume the following: the only people who go to the park are the residents of cities A and B; the cost of running Jellystone is $1; 500; 000 a year; and the social discount rate is 10%. Also assume that the park lasts forever.

(a) Compute the cost per visit to Jellystone for an inhabitant of each city.

(b) Assuming that those two observations (cost per visit and number of visits per inhabitant of city A, and cost per visit and number of visits per inhabitant of city B) correspond to two points on the same linear individual demand curve for visits to Jellystone, derive that individual demand curve (the cost for the price, and the number of visits for the quantity).

(c) With the individual demand curve from (b), calculate the consumer surplus for an inhabitant in city A and in city B, respectively. (Note that inhabitants in the two cities may not pay the same price.) What is the total consumer surplus of the two cities entire population combined?

(d) The total consumer surplus measures the total bene t of the park to the inhabitants in the two cities. There is a timber developer who wants to buy Jellystone to run his business. He is offering $100 million for the park. Should the park be sold? Show the process you obtain your conclusion.

Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties. She is asking you (her accountant) for some advice on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Funland, Waterworld, and Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Park managers meet with the CEO at least once annually to review their performance, where each park manager’s performance is measured by their park’s return on investment (ROI). The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital.

Fatima’s first difficulty is with the Funland park. Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood roller coaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance and insurance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction. Fatima (doing a quick mental calculation) saw that the investment had a payback period of eight years—much shorter than the life of the roller coaster—and is perplexed at Janet’s decision.

The second dilemma concerns the Waterworld park. Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same base pay rate, which he says he will accept if his performance is not appropriately acknowledged. Fatima needs to look at the relative performance across parks to determine how to proceed with David.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Included in the ‘Fixed COGS’ for Treetops is a $86,000 mortgage payment on the land and buildings for the park, which would still need to be paid by Central Adventures if the park is closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

The ‘Selling and administrative costs’ are all incurred directly by each park, and are determined at the beginning of each year (that is, they do not change with the number of tickets sold). In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a cost of capital of 12 percent (and Fatima uses the cost of capital as their required rate of return) and are subject to 18% income taxes.

Fatima needs to evaluate this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

Required:

Write your response in the form of a 1-2 page memo to Fatima Hopkins, from the perspective of the company accountant. Be sure to include all your financial analyses, clearly showing your calculations, to support your conclusions. Be sure to include the following points in your memo, and provide the appropriate financial analysis(es) to support your conclusions.

a. Evaluate Janet Lieberman’s (the Funland park manager) decision. Explain why it was/was not in Central Adventure’s overall best interest for Funland to reject the new rollercoaster.

B. Evaluate the validity of David Copperfield’s (the Waterworld park manager) complaint. Explain why it is (or is not valid), and what further information would be necessary.