Serenity Spa Vacations Inc. (SSV) is a company that specializes in organizing tours of luxury health and wellness spas around the world. During the first four years of its business, SSV experienced modest growth. Just over a year ago, however, the company was featured in an exclusive travel magazine. This, coupled with excellent web reviews and favourable word of mouth, fuelled a period of exponential growth that continues to this day. As there are a number of other well-established companies that offer similar services, SSV’s management knows that to continue its success, it must expand its loyal customer base by providing exemplary service and tours while controlling costs.
SSV’s accounting information system (AIS) currently consists of a purchased accounting software package that has only basic features and cannot be upgraded. It is supplemented by various spreadsheets used to track important information, including payroll, spa availability, bookings in progress, client preferences, and customer ratings of the wellness packages sold.
SSV’s vice-president of operations understands that the company’s current AIS is woefully inadequate and must be replaced with one that permits management to better direct the organization’s activities. The vice-president has requested you, CPA, the company’s chief financial officer, investigate the options that are available and make a recommendation as to how to proceed. The vice-president stated that the criteria considered should include cost, reliability, ability to accommodate continuing growth, reducing duplicative data entry, functionality, and compatibility with online purchases by customers.
You have eight people working for you in the accounting department in two locations and as such know that multi-user capabilities over a networked system are a must.
You are well aware of the inadequacies of the current system and the issues they are causing, and have researched various possibilities. You have narrowed the choice down to three options as described below, all of which meet the criteria of compatibility, multi-user functionality, network capability, and reducing duplicative data entry.

• Commercial package in the cloud (CPC) — SSV can arrange to access a widely used commercial software package for $2,750 per month based on an 18-month rental agreement. Your research suggests that the software package is very reliable, represents a significant improvement over SSV’s exiting AIS, and includes 100% of the identified “must haves” and about 60% of SSV’s “nice to haves.” Arranging access and uploading existing data take about two weeks. When a cloud-computing solution is used, expanding capacity is easily arranged at an additional cost. Moreover, as the host regularly upgrades the system on an ongoing basis, potential obsolescence isn’t a major factor.

• Commercial package purchased (CPP) — SSV can purchase the software package described above for $90,000. Installation of the program and conversion of the existing program will take about six weeks. The expected useful life of the new software is four years. Expanding capacity at a later date is easily accommodated by adding an additional module at a relatively nominal cost.

• Custom-built package (CBP) — You received two quotes from software engineers to custom build a system that meets all of SSV’s identified needs. The first engineer, who is very well known and has an excellent track record in building similar systems, quoted a price of $150,000. She suggests that the system will take about one year to build and install. The second engineer, who is new to the industry, promises delivery in six months at a firm cost of $80,000. The expected useful life of the custom-built software is four years. The system can be expanded at a later date; however, the expansion would have to be a customized solution, designed by a software engineer, at a cost that will likely be substantively higher than acquiring additional capacity for the CPP.

Required:
Make a recommendation to the vice president of operations of SSV.

Kingston Kiteboards Incorporated (KKI) has been experiencing very strong demand for its products as kite-boarding continues to take away market share from windsurfing. The company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,350,000 to construct in Year 0 with a salvage value of $160,000 in Year 15. The board manufacturing facility will cost $1,700,000 in Year 0 with a salvage value of $180,000 in Year 15. Combined annual revenue for the new kites and boards is expected to be $750,000 with annual combined operating costs of $270,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $550,000 in Year 0. The management team estimates that the land may be sold for the same value of $550,000 at the end of Year 15. The company uses a discount rate of 9% and a tax rate of 30%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities.

a. Use the present value tax shield approach to determine the net present value (NPV) of combined project involving both new manufacturing facilities. Should KKI proceed with the investment using these assumptions?

b. The management team at KKI has decided to take a more conservative approach with some of its estimates. The team feels that the facilities may only last for 13 years and the operating costs may amount to $300,000 per year. However, the company has successfully negotiated a construction cost of $1,200,000 for the kite facility and $1,400,000 for the board facility. (Assume the salvage values are unchanged.) Using the present value tax shield approach, what is the total NPV with these assumptions? Should the company proceed under these revised assumptions?

Northwood Company manufactures basketballs. The company has a ball that sells for $23. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $15 per ball, of which 65% is direct labor cost.

Last year, the company sold 30,000 of these balls, with the following results:                

5. Refer to the data in (point 4) above. If the expected change in variable costs takes place, how many balls will have to be sold next year to earn the same net operating income $90,000 as last year?

6. Refer again to the data in (point 4) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?

7. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable costs per ball by 40%, but it would cause fixed costs per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

8. Refer to the original data. Find the multi-product breakeven point, if the company decides to produce another types of balls (of higher quality) it is expected that the sell at a price of $40 of which 60% is variable cost and no more fixed cost is required. If the company is expecting to have sales at a value of 890,000 of which this new balls would be about 20% of the total sales value. All information related to the original types of balls remains the same.

The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $360,000. Other costs of operating each base amount to $260,000 per year. The equipment at each base has a current salvage value of $280,000. The buildings at these interior stations have no other use. To demolish them would cost $26,000 each.

The chief ranger is considering an alternative plan, which involves four fire-control stations located on the perimeter of the state forest. Each station would require a six-person staff, with annual compensation costs of $460,000. Other operating costs would be $270,000 per base. Building each perimeter station would cost $360,000. The perimeter bases would need helicopters and other equipment costing $660,000 per station. Half of the equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter stations were built.

The state uses a 10 percent hurdle rate for all capital projects.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:
1. Use the total-cost approach to prepare a net-present-value analysis of the chief ranger’s two fire-control plans. (Assume that the interior fire-control stations will be demolished if the perimeter plan is selected. The chief ranger has decided to use a 10-year time period for the analysis.) (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

Kingston Kiteboards Incorporated (KKI) has been experiencing very strong demand for its products as kite-boarding continues to take away market share from windsurfing. The company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,250,000 to construct in Year 0 with a salvage value of $150,000 in Year 12. The board manufacturing facility will cost $1,500,000 in Year 0 with a salvage value of $200,000 in Year 12. Combined annual revenue for the new kites and boards is expected to be $800,000 with annual combined operating costs of $300,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $500,000 in Year 0. The management team estimates that the land may be sold for the same value of $500,000 at the end of Year 12. The company uses a discount rate of 10% and a tax rate of only 15%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities.

a.  Use the present value tax shield approach to determine the net present value (NPV) of combined project involving both new manufacturing facilities. Should KKI proceed with the investment using these assumptions?

b.  The management team at KKI has decided to take a more conservative approach with some of its estimates. The team feels that the facilities may only last for 10 years and the operating costs may amount to $375,000 per year. However, the company has successfully negotiated a construction cost of $1,000,000 for the kite facility and $1,200,000 for the board facility. (Assume the salvage values are unchanged.) Using the present value tax shield approach, what is the total NPV with these assumptions? Should the company proceed under these revised assumptions?

Please show all steps without using excel

Kingston Kiteboards Incorporated (KKI) has been experiencing very strong demand for its products as kite-boarding continues to take away market share from windsurfing. The company is considering a new facility to manufacture an improved line of kites and another facility to produce a new line of boards. The company estimates that the new kite facility will cost $1,350,000 to construct in Year 0 with a salvage value of $160,000 in Year 15. The board manufacturing facility will cost $1,700,000 in Year 0 with a salvage value of $180,000 in Year 15. Combined annual revenue for the new kites and boards is expected to be $750,000 with annual combined operating costs of $270,000 each year. Management has identified a piece of land where both facilities could be built that could be purchased for $550,000 in Year 0. The management team estimates that the land may be sold for the same value of $550,000 at the end of Year 15. The company uses a discount rate of 9% and a tax rate of 30%. Assume that the CCA rate of 20% can be applied to the land and the manufacturing facilities

a. Use the present value tax shield approach to determine the NPV of combined project involving both new manufacturing facilities. Should KKI proceed with the investment using these assumptions?

b. The management team at KKI has decided to take a more conservative approach with some of its estimates. The team feels that the facilities may only last for 13 years and the operating costs may amount to $300,000 per year. However, the company has successfully negotiated a construction cost of $1,200,000 for the kite facility and $1,400,000 for the board facility. (Assume the salvage values are unchanged.) Using the present value tax shield approach, what is the total NPV with these assumptions? Should the company proceed under these revised assumptions?

The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $340,000. Other costs of operating each base amount to $240,000 per year. The equipment at each base has a current salvage value of $260,000. The buildings at these interior stations have no other use. To demolish them would cost $24,000 each.

The chief ranger is considering an alternative plan, which involves four fire-control stations located on the perimeter of the state forest. Each station would require a six-person staff, with annual compensation costs of $440,000. Other operating costs would be $250,000 per base. Building each perimeter station would cost $340,000. The perimeter bases would need helicopters and other equipment costing $640,000 per station. Half of the equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter stations were built.

The state uses a 10 percent hurdle rate for all capital projects. The chief ranger has decided to use a 10-year time period for the analysis.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

Use the incremental-cost approach to prepare a net-present-value analysis of the chief ranger’s decision between the interior fire-control plan and the perimeter fire-control plan. (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

The chief ranger of the state’s Department of Natural Resources is considering a new plan for fighting forest fires in the state’s forest lands. The current plan uses eight fire-control stations, which are scattered throughout the interior of the state forest. Each station has a four-person staff, whose annual compensation totals $270,000. Other costs of operating each base amount to $170,000 per year. The equipment at each base has a current salvage value of $190,000. The buildings at these interior stations have no other use. To demolish them would cost $17,000 each.

The chief ranger is considering an alternative plan, which involves four fire-control stations located on the perimeter of the state forest. Each station would require a six-person staff, with annual compensation costs of $370,000. Other operating costs would be $180,000 per base. Building each perimeter station would cost $270,000. The perimeter bases would need helicopters and other equipment costing $570,000 per station. Half of the equipment from the interior stations could be used at the perimeter stations. Therefore, only half of the equipment at the interior stations would be sold if the perimeter stations were built.

The state uses a 10 percent hurdle rate for all capital projects. The chief ranger has decided to use a 15-year time period for the analysis.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

1. Use the incremental-cost approach to prepare a net-present-value analysis of the chief ranger’s decision between the interior fire-control plan and the perimeter fire-control plan. (Round your "Discount factors" to 3 decimal places. Negative amounts should be indicated by a minus sign.)

McCormick & Company is considering a project that requires an initial investment of $24 million to build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3 million. The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500,000. Unit sales are expected to be $150,000 each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4 million (after tax). To supplement the production process, the company will need to purchase $1 million worth of inventory. That inventory will be depleted during the final year of the project. The company has $100 million of debt outstanding with a yield to maturity of 8 percent, and has $150 million of equity outstanding with a beta of 0.9. The expected market return is 13 percent, and the risk-free rate is 5 percent. The company's marginal tax rate is 40 percent. Should the project be accepted? questions: 6. Create an after-tax cash flow timeline. (what's the formula?) 7. What are the total expected cash flows at the end of year six? The $4.3 million is an opportunity cost and must be included at date zero as a cash outflow. If the project is accepted, however, the land can be sold in six years for $5.4 million. 8. Find the NPV using the after-tax WACC as the discount rate. 9. Find the IRR. 10. Should the project be accepted? Discuss whether NPV or IRR creates the best decision rule.

Describe the wireless solution you would recommend for EACH of the following three organizations, and give the rationale for your decision using at least three criteria for that choice. There could be a combination of these options for an individual organization.

1. General Hospital – GH has five floors, each about 30,000 square feet in size for a total of 150,000 square feet. They want to provide a wireless overlay network in addition to their 100Mb switched wired network. They have a bid for 802.11g access points at a cost of $100 each and a bid for 802.11n access points for $300 each. They expect to need 200 NICs. 802.11b NICs came built into their laptop and desktops. 802.11n NICs cost about $100 each. What would you recommend and WHY?

2. Central University – CU wants to add a wireless overlay network to one 20,000 square foot floor in its business school building. They have a bid for 802.11g access points at a cost of $100 each and a bid for 802.11n access points for $300 each. Students will buy their own computers, most of which will come with 802.11n NICs. What would you recommend, and WHY?

3. Ubiquitous Offices – UO provides temporary office space in cities around the country. They have a standard office layout that is a single floor with outside dimensions of 150 feet wide by 150 feet long. The interior is drywall offices. They have a switched 100Mb wired LAN but want to add WLAN as well. Data rates have been shown to slow dramatically when the distance from a laptop to the wireless access point exceeds 50 feet.

1. How many access points would you recommend and where would they be placed?
2. Draw the office and show where the access points would be located.
3. Show coverage for each access point with a circle, and label the channels (1, 6, 11)