Assume that a new theater is opening near campus. The theater owner wants lots of students to come to see movies, but is nervous about what influences their demand. Through masterful research, the theater owner discovers the following is true about demand for his theater tickets:

Own Price Elasticity    =   3.5      
Cross Price Elasticity    =   2.2      
Income Elasticity    =    4.7

If the owner lowers his price by 20%, by how much will quantity demand change? Show all work.

If the competing theater raises his price by 8%, by how much will quantity demand change at this new theater? Show all work.

If students at the Mount get 9% more income, by how much will demand for tickets change? Show all work.

If incomes fall by 5%, by how much does the theater owner need to lower his price to keep the same number of customers as before? (i.e. to keep quantity demand the same as before the drop in income). Show all work.

Integrative Exercise
Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel

Using the High-Low Method to Estimate Variable and Fixed Costs

Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. In an effort to supplement its lodging revenue, the hotel decided in 20X1 to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. Due to the great success of the canoes, the hotel began manufacturing and selling paddles as well in 20X3. Many hotel guests purchase a canoe and paddles for use in self-guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each canoe sells for $500, and each paddle sells for $50. A 20X3 fire destroyed the hotel’s accounting records. However, a new system put into place before the 20X4 season provides the following aggregated data for the hotel’s canoe and paddle manufacturing and marketing activities:

Required:

1. High-Low Cost Estimation Method

a. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the canoe product line.

b. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the paddle product line.

2. Cost-Volume-Profit Analysis, Single-Product Setting
Use CVP analysis to calculate the break-even point in units for

a. The canoe product line only (i.e., single-product setting)

b. The paddle product line only (i.e., single-product setting)

3. Cost-Volume-Profit Analysis, Multiple-Product Setting

The hotel's accounting system data show an average sales mix of approximately 300 canoes and 1,200 paddles each season. Significantly more paddles are sold relative to canoes because some inexperienced canoe guests accidentally break one or more paddles, while other guests purchase additional paddles as presents for friends and relatives. In addition, for this multiple-product CVP analysis, assume the existence of an additional $30,000 of common fixed costs for a customer service hotline used for both canoe and paddle customers. Use CVP analysis to calculate the break-even point in units for both the canoe and paddle product lines combined (i.e., the multiple-product setting).

4. Cost Classification

a. Classify the manufacturing costs, marketing costs, and customer service hotline costs either as production costs or period costs.

All manufacturing costs are costs. All marketing costs and customer hotline costs are costs

b. For the period costs, further classify them into either selling expenses or general and administrative expenses.

Marketing costs are selling oriented; therefore, the marketing period costs would be further classified as . Customer hotline costs relate to the customer service section of the value chain and would be further classified as .

5. Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Costs, Multiple- Product Setting

If both the variable and fixed production costs (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3.

6. Margin of Safety

Calculate the hotel’s margin of safety (both in units and in sales dollars) for Many Glacier Hotel, assuming the same facts as in Requirement 3, and assuming that it sells 700 canoes and 2,500 paddles next year.
total MOS units above total BE units

$ MOS in sales dollars

Cost Behavior and Cost-Volume-Profit Analysis for Many Glacier Hotel

Using the High-Low Method to Estimate Variable and Fixed Costs

Located on Swiftcurrent Lake in Glacier National Park, Many Glacier Hotel was built in 1915 by the Great Northern Railway. In an effort to supplement its lodging revenue, the hotel decided in 20X1 to begin manufacturing and selling small wooden canoes decorated with symbols hand painted by Native Americans living near the park. Due to the great success of the canoes, the hotel began manufacturing and selling paddles as well in 20X3. Many hotel guests purchase a canoe and paddles for use in self-guided tours of Swiftcurrent Lake. Because production of the two products began in different years, the canoes and paddles are produced in separate production facilities and employ different laborers. Each canoe sells for $500, and each paddle sells for $50. A 20X3 fire destroyed the hotel’s accounting records. However, a new system put into place before the 20X4 season provides the following aggregated data for the hotel’s canoe and paddle manufacturing and marketing activities:

Required:

1. High-Low Cost Estimation Method

a. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the canoe product line.

b. Use the high-low method to estimate the per-unit variable costs and total fixed costs for the paddle product line.

2. Cost-Volume-Profit Analysis, Single-Product Setting
Use CVP analysis to calculate the break-even point in units for

a. The canoe product line only (i.e., single-product setting)

b. The paddle product line only (i.e., single-product setting)

3. Cost-Volume-Profit Analysis, Multiple-Product Setting

The hotel's accounting system data show an average sales mix of approximately 300 canoes and 1,200 paddles each season. Significantly more paddles are sold relative to canoes because some inexperienced canoe guests accidentally break one or more paddles, while other guests purchase additional paddles as presents for friends and relatives. In addition, for this multiple-product CVP analysis, assume the existence of an additional $30,000 of common fixed costs for a customer service hotline used for both canoe and paddle customers. Use CVP analysis to calculate the break-even point in units for both the canoe and paddle product lines combined (i.e., the multiple-product setting).

4. Cost Classification

a. Classify the manufacturing costs, marketing costs, and customer service hotline costs either as production costs or period costs.

All manufacturing costs are product  costs. All marketing costs and customer hotline costs are period  costs

b. For the period costs, further classify them into either selling expenses or general and administrative expenses.

Marketing costs are selling oriented; therefore, the marketing period costs would be further classified as selling expenses . Customer hotline costs relate to the customer service section of the value chain and would be further classified as general and administrative expense .

5. Sensitivity Cost-Volume-Profit Analysis and Production Versus Period Costs, Multiple- Product Setting

If both the variable and fixed production costs (refer to your answer to Requirement 1) associated with the canoe product line increased by 5% (beyond the estimate from the high-low analysis), how many canoes and paddles would need to be sold in order to earn a target income of $96,000? Assume the same sales mix and additional fixed costs as in Requirement 3.

6. Margin of Safety

Calculate the hotel’s margin of safety (both in units and in sales dollars) for Many Glacier Hotel, assuming the same facts as in Requirement 3, and assuming that it sells 700 canoes and 2,500 paddles next year.
total MOS units above total BE units

$ MOS in sales dollars

Lets consider again the willingness to pay for a hotel room and theme park entrance for the four market segments. Also assume as before a market size of 5,000 individuals per day.

Which would be the optimal price to maximize revenue for the Room and Theme Park, without considering the possibility of bundling?

Room: $200

Theme Park: $150

Room: $300

Theme Park: $150

Room: $200

Theme Park: $200

Room: $300

Theme Park: $200

This is the predicted cash flow stream of an investment project related to the launch of a new automotive vehicle for a fictitious firm:

Be aware that this is a stylized Income Statement, designed for educational purposes, in order to force your critical thinking.  

Parameters considered in the DCF:

WACC = 9.5% (weighted average cost of capital)
Price = $22,000 /unit
Variable Costs = $18,700/unit
Fixed Costs = 150K
Investment = $3.5M (including the Cost of Equipment @$1M and R&D and Mkt expenses @$2.5M)

Supporting formulas:

a) free cash = unit contribution - Fixed Cost + Depreciation;

b) unit contribution = unit sales*(price - variable costs)

Note on the Investment and depreciation: the total initial investment was $3.5M, but $1M was paid in advance to purchase equipment and expand capacity. The remaining $2.5M was used in R&D and Marketing expenses paid at the end of Year #1. Manufacturing/sales effectively start in Year #2, so depreciation is initiated then for 5 consecutive years. The immediate investment cost of manufacturing is incurred in Time 0 and it is not affected by the discount rate (i.e., initial investment). Assume that production is interrupted in Year #10, with no residual value (the machinery cannot be sold due to high levels of specificity!).

Assignment Questions:

1) Based on the simplified information provided above, discuss whether you would support this investment. Why? or Why not? (Feel free to use Excel or a Financial Calculator)

Five Seasons Hotel is a chain with 10 hotels. Strategically, the chain implements a cookie-cutter approach to building and running its hotels, in that all hotels are practically identical. Five Seasons invested $150 million in acquiring the land for all hotels and $500 million in building and furnishing the 10 hotels to a guest-ready stage. Each hotel has 150 rooms. Each room has a rack rate of $200 per night but the hotel gives an average of discount of $30 per night off this base price. Each hotel costs $1 million in materials to run, and is staffed by 58 employees, each paid an average compensation of $50,000 a year. This staffing level implies a certain service level, which together with the rack rate and discount, determines the chain’s average occupancy rate—the percent of available rooms sold—in this approximate way:
Chain-wide average occupancy rate = 0.01 ? number of employees per hotel
? ( 0.0015 ?base Price ) + ( 0.01 ? discount),
subject to a maximum of 100% and minimum of 0% (base Price and discount are expressed in [$]). The company operates 365 nights a year.
1. Draw the ROIC tree and discuss its structure.
2. Use this tree to compute the current ROIC?
3. Reducing the number of employees reduces staffing costs, but it also reduces the occupancy rate when service level drops. What is the ROIC if Five Seasons reduces the number of employees to 50 per hotel?

Margaret Moore is the only owner of Carla Vista Park, a public camping ground near the Lake Mead National Recreation Area. Margaret has compiled the following financial information as of December 31, 2022.

(a)

Determine Margaret Moore’s net income from Carla Vista Park for 2022.

(b)

Prepare a balance sheet for Carla Vista Park as of December 31, 2022.

Question 1

(Show workings)

1.1 A firm’s capital structure comprises: R600 000 Equity and R400 000 long term debt. The cost of equity is 12% and the before tax cost of debt is 12%. If the firm’s tax rate is 30%, determine the firm’s weighted average cost of capital(WACC) and comment if the firm should accept a project if the internal rate of return is 12%.

1.2 Complete table attached

As a newly appointed store manager you are required to draw up a 3 month cash budget to present to your senior manager. The following information are provided: Use 800K, instead of 800 000.     

1. Total sales are projected to be R800 000 for month1 and increasing by 10% each month. 70% of the total sales are cash sales and the remaining 30% is collected the following month from debtors.(there was no amount owing prior to month 1)
2. Purchases are 60% of the total monthly sales, paid in the same month.
3. Rent to be paid will be R36 000 per month.
4. Salaries are expected to be R150 000 per month.
5. A machine will be bought for R50 000 cash in month 2.
6. The opening cash balance was R 56 000 in month 1.

CODE IN PYTHON:

Your task is to write a simple program that would allow a user to compute the cost of a road trip with a car. User will enter the total distance to be traveled in miles along with the miles per gallon (MPG) information of the car he drives and the per gallon cost of gas. Using these 3 pieces of information you can compute the gas cost of the trip.

User will also enter the number of days it will take to complete the trip. For each night (day-1 nights), user will need a hotel. We will ask for the number of stars for the hotel the user wants to stay. 5 star hotel costs $250 per night. 4 star hotel costs $180 per night. 3 star hotel costs $120 per night, 2 star hotel costs $100 per night and finally 1 star hotel costs $50 per night. Using the hotel costs and the number of nights users will need to stay at a hotel, you can compute the hotel cost of the trip.

Please note that 5 star and 4 star hotels give 10% discount if the user will be staying more than 2 nights -- (these are chain hotels, so even if you are staying at different locations discount apply).

We should also account for the cost of meals. This depends on the type of hotel the user is staying. In general, we take 20% of hotel cost as the meal cost (after 10% hotel discount if applicable).

Example Run #1

Distance: 350

MPG : 15

Gas Price: 3.79

Days Traveling : 3

Hotel Stars (1-5) : 3

Your total cost is $376.43333333333334

Example Run #2

Distance: 400

MPG : 20

Gas Price: 2.99

Days Traveling: 1

Hotel Stars (1-5): 5

Your total cost is $59.800000000000004.

Example Run #3

Distance: 150 MPG : 25 Gas Price: 1.99 Days Traveling : 2 Hotel Stars (1-5): 5 Your total cost is $311.94.

1. A researcher claims that the mean rate of Infant mortality in the City of Chicago is below 9.3 %. Based on the data represented for the years 2005 – 2011, perform a hypothesis test to test his claim using a significance level of α= 0.10.

2.Would your conclusion change for question 1 if you used a significance level of α= 0.05? Explain.

Data:

Please show work. Thank you :)