Case:

Rent Relief Caravans4Hire Ltd1 provides short-term rental of caravans to tourists for camping holidays throughout Australia. Caravans4Hire Ltd leases several large properties in Adelaide, Perth and Sydney, which it needs to park its caravans when not in use. Due to border restrictions, travel restrictions, localised lockdowns and Government advice to stay home, Caravans4Hire Ltd has suffered a significant loss of revenue and cash flow. On 1 May 2020 the National Hotel and Tourism Industry Association which is a non-government, not-for-profit industry association. It supports its members, who are businesses operating in the hospitality and tourism industry awarded Caravans4Hire Ltd a grant of $360 000 in total for rent relief for the three months ended 31 July 2020. The grant was received in cash on 1 May 2020. Caravans4Hire Ltd is under no obligation to repay the money received. REQUIRED All questions should be answered from the perspective of Caravans4Hire Ltd. The word lengths are a suggestion only, i.e., they are NOT strict word limits for each part.

a) What is the main accounting policy issue(s) that need to be resolved to account for the grant from the National Hotel and Tourism Industry Association? (20%) (part a) 15 – 50 words)

b) i) Identify one principle that is relevant to the accounting policy issue that you identified in part a) by providing a reference for that principle (e.g., Conceptual Framework, Chapter X, para. x.xx) AND explain why you chose that principle. (20%)

ii) identify another principle that is relevant to the accounting policy issue that you identified in part a) by providing a reference for that principle.(10%) (part b) 50 – 100 words).

c) Describe an accounting policy to account for the grant from the National Hotel and Tourism Industry Association. Do not justify your policy. Just describe it. (50%) (part c) 20 - 80 words)

1. An amusement park, whose customer set is made up of two markets, adult and children, has developed demand schedules as follows:

The marginal operating cost of each unit of quantity is $5. (Hint: Because marginal cost is a constant, so is average variable cost. Ignore fixed cost.) The owners of the amusement park want to maximize profits.

1. Calculate the price, quantity, and profit for each segment if the amusement park charges a different price in each market. (Hint: calculate profit at each price in the adult market, then in the child market, and choose profit maximizing in each. Using a spreadsheet would make this task manageable.)

Adult market price (in dollars):

Adult market quantity:

Adult market profit (in dollars):

Child market price (in dollars):

Child market quantity:

Child market profit (in dollars):

Total profit (adult + child, in dollars):

2. Calculate the price, quantity, and profit if the amusement park charges the same price in the two markets combined. (Hint: Add adult and child quantities together, and treat this total and the entire market quantity at each price.)

Market price (in dollars):

Quantity (child + adult at this price):

Profit:

3. Is profit higher, lower, or the same when the market is split with different prices for adults and for children?

1. How much is your payment on a 200k mortgage at 3.5% for a 30 year fixed? Use 250k for the sales price and let the system calculate your taxes and insurance costs. Use the Mortgage Calculator in the Motley Fool Foolish Calculators
2. Pick another housing calculator. Create your own problem using that calculator. Solve the problem and write the question below.

Even within a particular chain of hotels, lodging during the summer months can vary substantially depending on the type of room and the amenities offered. Suppose that we randomly select 50 billing statements from each of the computer databases of the Hotel A, the Hotel B, and the Hotel C chains, and record the nightly room rates. The means and standard deviations for 50 billing statements from each of the computer databases of each of the three hotel chains are given in the table.

Hotel A Hotel B Hotel C

Sample average ($) 145 160. 125

Sample standard deviation 17.6 22.6. 12.5

(a) Find a 95% confidence interval for the difference in the average room rates for the Hotel A and the Hotel C chains. (Round your answers to two decimal places.)

Rocky Mountain National Park is a popular park for outdoor recreation activities in Colorado. According to U.S. National Park Service statistics, 46.7% of visitors to Rocky Mountain National Park in 2018 entered through the Beaver Meadows park entrance, 24.3% of visitors entered through the Fall River park entrance, 6.3% of visitors entered through the Grand Lake park entrance, and 22.7% of visitors had no recorded point of entry to the park.† Consider a random sample of 175 Rocky Mountain National Park visitors. Use the normal approximation of the binomial distribution to answer the following questions. (Round your answers to four decimal places.)

(a)
What is the probability that at least 65 visitors had a recorded entry through the Beaver Meadows park entrance?

(b)
What is the probability that at least 60 but less than 70 visitors had a recorded entry through the Beaver Meadows park entrance?

(c)
What is the probability that fewer than 11 visitors had a recorded entry through the Grand Lake park entrance?

(d)
What is the probability that more than 40 visitors have no recorded point of entry?

Rocky Mountain National Park is a popular park for outdoor recreation activities in Colorado. According to U.S. National Park Service statistics, 46.7% of visitors to Rocky Mountain National Park in 2018 entered through the Beaver Meadows park entrance, 24.3% of visitors entered through the Fall River park entrance, 6.3% of visitors entered through the Grand Lake park entrance, and 22.7% of visitors had no recorded point of entry to the park.† Consider a random sample of 175 Rocky Mountain National Park visitors. Use the normal approximation of the binomial distribution to answer the following questions. (Round your answers to four decimal places.)

(a)

What is the probability that at least 85 visitors had a recorded entry through the Beaver Meadows park entrance?

(b)

What is the probability that at least 80 but less than 90 visitors had a recorded entry through the Beaver Meadows park entrance?

(c)

What is the probability that fewer than 11 visitors had a recorded entry through the Grand Lake park entrance?

(d)

What is the probability that more than 40 visitors have no recorded point of entry?

•South Park Energy is considering replacing the company's Methane Plant with a Nuclear Plant.

•The Methane Plant was built two years ago at a cost of $120M with an expected useful life of 5 years. This plant is being depreciated to zero using 5-year straight-line depreciation. The Methane Plant can be sold today for $70M. If this plant had been kept, it would have had no salvage value at the end of its expected useful life three years from today.

•The Nuclear Plant would cost $500M to build today. Since the Nuclear plant will just be a working prototype, its expected useful life is only 3 years and it falls in the 3-year MACRS depreciation class (yr 1: 33%, yr 2: 45%, yr 3: 15%, yr 4: 7%). The Nuclear Plant is expected to have a salvage value of $40M at the end of the plant's 3-year life. The Nuclear Plant is expected to reduce operating expenses by $150M each year during the plant's 3-year expected life and increase revenues by $40 million each year. The company's marginal tax rate is 40%, and this project has a weighted average cost of capital of 13%.

(Q1) What is the total cash flows during year 3 for this replacement analysis?

(Q2) What is the initial cash flow for this replacement analysis?

CASE: BARRACUDA INC. Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into multiple hardware and plumbing fixture products that it sells to professionals (i.e., plumbers and electricians) and through the large volume do-it-yourself (DIY) stores like The Home Depot and Lowe’s. While this successful growth has been achieved primarily through acquisition, the company tends to let the acquired businesses run independently. It has done so by looking to fragmented industries to acquire small firms with efficient operations and good management teams. It then grows these businesses through a combination of internal cash flow and debt, and directs new sales to the professional and DIY channels. Barracuda has been particularly successful in the faucet segment, which it practically reinvented though such technological innovations as the washerless faucet, and marketing innovations like branding and good-better-best merchandising. Barracuda has leveraged this merchandising strategy across its businesses and, coupled with the explosive growth of the DIY channel, is spectacularly profitable with a net profit after tax (NPAT) of 18%. The firm’s management is looking to broaden its revenue base and has identified the home furnishings business as sharing many characteristics with faucets, prior to Barracuda’s entry into faucets. It plans to enter this industry through large-scale acquisitions. The landscape of the U.S. home furnishings manufacturing industry consists of many players, none with controlling share, and serious issues of overcapacity. There are presently 2500 home furnishings firms, and only 600 of those have over 15 employees. Average NPAT is between 4 and 5%, which also reflects the fact that few firms have good managers. While the industry is still primarily comprised of single-business family-run firms, which manufacture furniture domestically, imports are increasing at a fairly rapid rate. Some of the European imports are leaders in contemporary design. Relatively large established firms are also diversifying into the home furnishings industry via acquisition. Supplier firms to the home furnishings industry are in relatively concentrated industries (like lumber, steel, and textiles), and therefore typically offer fewer accommodations to the small furniture manufacturers. Retailers, the intermediate customer of the home furnishings industry, are becoming increasingly concentrated and the few large, successful furniture companies actually have their own stores or have dedicated showrooms in the larger department stores. Customers have many products to choose from, at many different price points, and few home furnishing products beyond those of the larger companies have established brands. Also, customers can switch easily among high and low-priced furniture and other discretionary expenditures (spanning plasma TVs to the choice of postponing any furniture purchase entirely).

1. Why would Barracuda consider acquisition as its preferred mode of entry into furniture?

2. Given the history of Barracuda, (a) what guidelines would you suggest to management regarding their acquisition strategy in the home furnishings industry; (2) what threats does Barracuda face in entering the furniture industry through acquisition.