Bob Tate is the director of strategy for a small truck delivery company. The company operates a fleet of 100 trucks. Of these, 36 trucks will need to be replaced this year. Bob has two choices, either diesel or green trucks. The following are the facts for each possibility:

For EACH diesel truck: Cost = $175K; life, 3 years (the trucks lose value quickly after 3 years of operations as the mileage reaches 200K); salvage value at end of three years, $50K; annual operating costs, $90K.

For EACH green truck: Cost = $220K; life, 4 years; salvage value at end of four years, $100K; annual operating costs, $75K.

Which choice should Bob make, diesel or green if the cost of capital is 10%; you may assume that the time period covered by this decision is 12 years IF you wish, and you can ignore the other 64 of the 100 trucks in the fleet? (Ignore taxes, depreciation, and ignore diversification.)

The Empire Hotel is a full-service hotel in a large city. Empire is organized into three departments that are treated as investment centers. Budget information for the coming year for these three departments is shown as follows. The managers of each of the departments are evaluated and bonuses are awarded each year based on ROI. Empire Hotel

Hotel Rooms Restaurants Health Spa

Average investment $ 8,148,000 $ 4,761,000 $ 1,025,000

Sales revenue $ 10,000,000 $ 2,000,000 $ 600,000

Operating expenses 8,775,000 1,359,000 402,000

Operating earnings $ 1,225,000 $ 641,000 $ 198,000

Required:

a. Compute the ROI for each department. Use the DuPont method to analyze the return on sales and capital turnover. Assume the Health Spa is considering installing new exercise equipment. Upon investigating, the manager of the division finds that the equipment would cost $40,000 and that operating earnings would increase by $8,000 per year as a result of the new equipment.

b-1. What would be the ROI of investment in the new exercise equipment and Health Spa?

b-2. Would the manager of the Health Spa be motivated to undertake such an investment?

c-1. Compute the residual income for each department if the minimum required return for the Empire Hotel is 17 percent.

c-2. What would be the impact of the investment on the Health Spa's residual income?

The Empire Hotel is a full-service hotel in a large city. Empire is organized into three departments that are treated as investment centers. Budget information for the coming year for these three departments is shown as follows. The managers of each of the departments are evaluated and bonuses are awarded each year based on ROI.

Required:

a. Compute the ROI for each department. Use the DuPont method to analyze the return on sales and capital turnover.

Assume the Health Spa is considering installing new exercise equipment. Upon investigating, the manager of the division finds that the equipment would cost $40,000 and that operating earnings would increase by $8,000 per year as a result of the new equipment.

b-1. What would be the ROI of investment in the new exercise equipment and Health Spa?

b-2. Would the manager of the Health Spa be motivated to undertake such an investment?

c-1. Compute the residual income for each department if the minimum required return for the Empire Hotel is 17 percent.

c-2. What would be the impact of the investment on the Health Spa's residual income?

Financial controller of the Mondavi Hotel has the following information about estimated sales revenue and operating expenses for September, October and November.

The controller knows that cash sales are 30% of total sales and remaining sales are on credit. For the collection of credit sales, 50% are collected in the month of sales while the remaining 50% is collected in the following month. Mondavi Hotel pays 60% of the operating expenses in cash in the month they incur and remaining 40% is paid in the following month. In addition to this information, the controller is informed that:

• In October, Mondavi Hotel will replace the range in the main kitchen, which will cost $14,000 and will be paid in cash immediately.
• Each month, $20,000 will paid to a national bank to reduce an outstanding long-term debt.

Mondavi Hotel uses cash receipts and disbursement method for cash budgets.

Given the information:

If the beginning cash balance for October is $150,000, what would be the ending balance in October?

Rooter's Cleaning Services provided data concerning the costs incurred to clean hotel rooms for which hotel customers pay $150 per night. Data for the past 7 months are as follows: January February March April May June July Number of rooms cleaned 250 160 200 150 300 170 260 Cleaning cost $6,450 $4,060 $5,100 $4,100 $6,760 $4,200 $6,530 How much are estimated monthly variable costs using the high-low method?

A semiprofessional baseball team near your town plays two home games each month at the local baseball park. The team splits the concessions 50/50 with the city but keeps all the revenue from ticket sales. The city charges the team $100  each month for the three-month season. The team pays the players and manager a total of $1000 each month. The team charges $10 for each ticket, and the average customer spends $6 at the concession stand. Attendance averages 30 people at each home game.

The team earns an average of (1)$___ in total revenue (tickets plus share of concessions) for each game and (2) $___ of revenue each season.

With total costs of (3)$____ each season, the team finishes the season with (4)$____ of profit.

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

Required:

Compute the individual product costs per unit assuming that Tiger Furnishings uses machine-hours to allocate overhead to the products. (Do not round intermediate calculations. Round final answers to 2 decimal places.)

Basic

Dominator

How does bundling payments, like insurance companies paying a per diem rate for all hospital hotel-type services, encourage cost savings on the part of the hospital?

Evans Park

Evans Park is a small amusement park that provides a variety of rides for children and teens.   In a typical summer season, the park sells twice as many child tickets as adult tickets.   Adult ticket prices are $18 and the children’s price is $10.   Revenue from food and beverage concessions is estimated to be $60,000, and souvenir revenue is expected to be $25,000.   Variable costs per person (child or adult) are $3.25.   Fixed costs amount to $150,000.   Build a model to show the profitability of this park based on these facts.  

REQUIRED: Show the model with adult sales at the break-even point.

HINT: The EvansPark sheet gives a starting point.   After entering labels and formulas for your model, use Goal Seeking to find where to adjust adult ticket sales so that profit equals zero.   “Goal Seek” is found under the “What-If Analysis” button of the “Data” ribbon.

Over the past six months, Six Flags conducted a marketing study on improving their park experience. The study cost $3.00 million and the results suggested that Six Flags add a kid's only roller coaster.

Suppose that Six Flags decides to build a new roller coaster for the upcoming operating season. The depreciable equipment for the roller coaster will cost $50.00 million and an additional $5.00 million to install. The equipment will be depreciated straight-line over 20 years.

The marketing team at Six Flags expects the coaster to increase attendance at the park by 5%. This translates to 110,714.00 more visitors at an average ticket price of $39.00. Expenses for these visitors are about 12.00% of sales.

There is no impact on working capital. The average visitor spends $23.00 on park merchandise and concessions. The after-tax operating margin on these side effects is 31.00%. The tax rate facing the firm is 36.00%, while the cost of capital is 8.00%.

What is the NPV of this coaster project if Six Flags will evaluate it over a 20-year period? (Six Flags expects the first year project cash flow to grow at 5% per year, going forward)
(Express answer in millions)