A family purchases a new home, costing $1million, with $200,000 in cash and a mortgage to cover the remainder.

a. Write the family’s balance sheet (if it owns nothing more than the house and owes nothing more than the mortgage). What is the household’s net wealth? What is the household’s leverage ratio?

b. The family decides to improve its home by building a fancy roof-deck. The roof-deck will increase the value of the house by $100,000, but will cost $90,000. The family takes out a second mortgage to finance the entire construction project (borrows $90,000). Write the family’s balance sheet after completing the construction project. What is the family’s net wealth? What is its new leverage ratio?

c. After completing the construction project, house prices in the family’s neighbourhood decline by 20%. Write the family’s balance sheet after the decline in prices. What is its net wealth?

d. Explain why this decline in house prices could lead to a vicious cycle of depressed housing demand, low prices, and declining wealth.

e. Mian and Sufi propose eliminating mortgages and replacing them with banks taking equity shares in the houses they finance. In other words, they propose that the amount owed by households to the bank will increase and decrease in proportion to the change in the value of the house. How would the 20% decline in housing prices from part c of the question affect the family’s balance sheet, net wealth, and leverage under this alternative arrangement?

A city wants to build and operate a wastewater treatment facility over a very long service life as “perpetual” infrastructure for the city. A consulting engineer has estimated that the plant will cost $40 million to construct. She further estimates it will require $12 million every 20 years to replace major unit operations equipment (bar screens, aeration equipment, dewatering centrifuges, etc.) and $21 million every 40 years for major renovation of tanks and other structural elements. Operations and maintenance costs are estimated to be $3 million/year. In order to pay for the construction, the city plans to take out a bond to repay both the interest and principal in equal annual payments. Due to a recent recession, the discount rate and the bond interest rate are both 3%.

1. The city plans to use sewage fees to pay for the construction and the capitalized costs of the plant (O&M, equipment and renovation costs). The average wastewater flow rate in the city sewers is 8,000 kgal/day. What is the rate the city utility should charge users in $/kgal?
2. As an alternative, the city is considering just collecting sewer fees to pay for initial construction, O&M, equipment replacement at year 20 and major renovation at year 40. Given the same demand, what should the break-even sewer rates be ($/kgal)?
3. Which rate structure would you select? Explain.

Last week we learned more about important concepts in the area of Distribution and about the job of Revenue Manager. Two of the most heavily negotiated points in the distribution channel agreements are Last Room Availability and Rate Parity. Which of these do you feel is the most beneficial to the hotel, and why?

4. Understanding the facts/background of a transaction: Caesars Entertainment is in negotiations to purchase a new hotel. You are an analyst in the accounting policy department and are in the first step of the research process (understanding the facts/background of the transaction). Identify three resources you could consult to gather additional background/precedent for this issue.

"The City Ledger"

define what city-ledger, then categories and discussed/ create a list of best practices for a hotel chain of your choice. (Be sure to briefly describe the chain in your response.)

Analyze the mechanics of the entry and make at least one recommendation for improving the process. Please be as creative as you like.