You have been appointed as the Finance Manager of Shangpuri Hotel Bhd. As a finance manager, you are evaluating Project PJ10B, an investment project, and TWO (2) other additional projects namely Project Bee and Project Cee. You are required to deliver a comprehensive report explaining the application of numerous financial practices for valuing investment projects for the board of directors’ strategic decision. Your finance department has forecasted cash flows to assess the viability of Project PJ10B, Project Bee, and Project Cee incorporating risk into the calculations.
Additional information:
1. Current dividend for Shangpuri Hotel Bhd’s ordinary stock is RM2.50 and dividend growth rate is 6%.
2. Shangpuri Hotel Bhd is planning to issue new ordinary stock at RM50 with a flotation cost of 9%.
3. The company’s bond is paying a 6% coupon payment. Corporate tax stood at 30%.
4. Shangri Hotel Bhd’s capital structure comprising of 40% debt and 60% common stock.
Information related to Project PJ10B
The cost of this investment is RM1,200,000.
The investment is estimated to effectively contribute for 3 years. Ignore the residual value.
Depreciation for the Project PJ10B is subject to a straight-line method.
Further, yearly cash inflow is estimated at $900,000 and cash outflow RM400,000 per year. Cash inflow and outflow in entitle for tax benefit.
Finance department estimates discount factor at 7.0%.
Information related to Project Bee
1. Cost of this investment is RM120,000
2. Finance department estimates discount factor at 8.0%.
3. Ignore tax and depreciation.
|
Economy |
Probability |
Cash Flow |
|
Good |
0.30 |
RM20,000.00 |
|
Normal |
0.50 |
RM30,000.00 |
|
Bad |
0.20 |
RM40,000.00 |
Information related to Project Cee
1. Cost of this investment is RM120,000
2. Finance department estimates discount factor at 8.0%.
3. Ignore tax and depreciation.
|
Economy |
Probability |
Cash Flow |
|
Good |
0.30 |
RM50,000.00 |
|
Normal |
0.50 |
RM30,000.00 |
|
Bad |
0.20 |
RM20,000.00 |
Required:
QUESTION 1
a. Calculate the cost of new ordinary stock for Shangpuri Hotel Bhd. The current dividend for the ordinary stock is $2.50 and the dividend is expected to grow at 6%.
b. Explain THREE (3) advantages and THREE (3) disadvantages of equity financing.
c. Calculate cost of debt for Shangpuri Hotel Bhd
d. Explain THREE (3) advantage and THREE (3) disadvantages of debt financing.
e. Calculate the weighted average cost of capital for the company
f. Explain FIVE (5) uses of WACC.
QUESTION 2
a. Calculate NPV for Project PJ10B based on discount factor of Shangpuri Hotel Bhd.
b. Calculate NPV for Project PJ10B based on WACC of Shangpuri Hotel Bhd.
c. Calculate IRR for Project PJ10B
d. Explain FIVE (5) conflicts between NPV and IRR
QUESTION 3
a. Calculate expected Annual Cash flow from Project Bee
b. Calculate expected Annual Cash flow from Project Cee
c. Calculate NPV and IRR from Project Bee assuming discount factor stood at 8% & Project Bee’s life span is 6 years.
d. Calculate NPV and IRR from Project Cee assuming discount factor stood at 8% & Project Cee’s life span is 6 years.
QUESTION 4
a. Provide overall recommendation to Shangpuri Hotel Bhd Board of Directors on the viability of
i. Project PJ10B.
ii. Project Bee.
iii. Project Cee.
(15 marks
b. Prepare an executive summary
In: Finance
|
Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,760,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented below: |
| 2015 | 2016 | ||
| Costs incurred during the year | $ 399,000 | $1,060,000 | |
| Estimated costs to complete | 931,000 | 0 | |
| Billings during the year | 485,000 | 1,330,000 | |
| Cash collections during the year | 385,000 | 1,430,000 | |
Required information
|
Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. |
| Required: |
| Compute the amount of gross profit recognized during 2015 and 2016. |
13.Required information
|
Assume that Beavis recognizes revenue on this contract over time according to percentage of completion. |
| Required: |
|
Prepare all journal entries to record costs, billings, collections, and profit recognition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
14.Required information
|
Assume that Beavis recognizes revenue upon completion of the project. |
| Required: |
|
Compute the amount of gross profit recognized during 2015 and 2016. |
15.Required information
|
Assume that Beavis recognizes revenue upon completion of the project. |
| Required: |
|
Prepare all journal entries to record costs, billings, collections, and profit recognition. |
In: Accounting
On January 1, 2018, the Highlands Company began construction on
a new manufacturing facility for its own use. The building was
completed in 2019. The company borrowed $2,200,000 at 8% on January
1 to help finance the construction. In addition to the construction
loan, Highlands had the following debt outstanding throughout
2018:
| $9,000,000, 10% bonds | |
| $6,000,000, 8% long-term note | |
Construction expenditures incurred during 2018 were as
follows:
| January 1 | $ | 900,000 | |
| March 31 | 1,500,000 | ||
| June 30 | 1,160,000 | ||
| September 30 | 900,000 | ||
| December 31 | 700,000 | ||
Required:
Calculate the amount of interest capitalized for 2018 using the
specific interest method. (Do not round the intermediate
calculations. Round your percentage answers to 1 decimal place
(i.e. 0.123 should be entered as 12.3%).)
In: Accounting
On January 1, 2018, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2019. The company borrowed $1,550,000 at 7% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2018: $9,000,000, 11% bonds $3,000,000, 7% long-term note Construction expenditures incurred during 2018 were as follows: January 1 $ 680,000 March 31 1,280,000 June 30 896,000 September 30 680,000 December 31 480,000 Required: Calculate the amount of interest capitalized for 2018 using the specific interest method. (Do not round the intermediate calculations. Round your percentage answers to 1 decimal place (i.e. 0.123 should be entered as 12.3%).)
In: Accounting
On January 1, 2021, the Highlands Company began construction on
a new manufacturing facility for its own use. The building was
completed in 2022. The company borrowed $2,500,000 at 8% on January
1 to help finance the construction. In addition to the construction
loan, Highlands had the following debt outstanding throughout
2021:
| $9,000,000, 9% bonds | |
| $6,000,000, 8% long-term note | |
Construction expenditures incurred during 2021 were as
follows:
| January 1 | $ | 1,000,000 | |
| March 31 | 1,600,000 | ||
| June 30 | 1,280,000 | ||
| September 30 | 1,000,000 | ||
| December 31 | 800,000 | ||
Required:
Calculate the amount of interest capitalized for 2021 using the
specific interest method. (Do not round the intermediate
calculations. Round your percentage answers to 1 decimal place
(i.e. 0.123 should be entered as 12.3%).)
In: Accounting
LaVilla is a village in the Italian Alps. Given its enormous popularity among Swiss, German, Austrian, and Italian skiers, all of its beds are always booked in the winter season and there are, on average, 1,200 skiers in the village. On average, skiers stay in LaVilla for 10 days.
A. How many new skiers are arriving – on average – in LaVilla every day?
B. A study done by the largest hotel in the village has shown that skiers spend on average $50 per person on the first day and $30 per person on each additional day in local restaurants. The study also forecasts that – due to increased hotel prices – the average length of stay for the 2014/2015 season will be reduced to five days. What will be the percentage change in revenues of local restaurants compared to last year (when skiers still stayed for 10 days)? Assume that hotels continue to be fully booked!
In: Other
Exercise 1: Average daily hotel room rate (x) and amount spent on entertainment (y) is given in the following table for different cities. a. Use these data to develop an estimated regression equation that could be used to predict the amount spent on entertainment for a given average daily hotel room rate. b. What is the value of sample correlation coefficient? c. Compute the coefficient of determination. What percentage of the variation in total amount spent on entertinment can be explained by room rate? d) Predict the amount spent on entertainment for a particular city that has a daily room rate of $89. City Room Rate ($) Entertainment ($) Boston 148 161 Denver 96 105 Nashville 91 101 New Orleans 110 142 Phoenix 90 100 San Diego 102 120 San Francisco 136 167 San Jose 90 140 Tampa 82 98
In: Accounting
A survey found that women's heights are normally distributed with mean 62.6 in. and standard deviation 2.6 in. The survey also found that men's heights are normally distributed with a mean 67.6 in. and standard deviation 2.7. Complete parts a through c below.
a. Most of the live characters at an amusement park have height requirements with a minimum of 4 ft 9 in. and a maximum of 6 ft 3 in. Find the percentage of women meeting the height requirement.
The percentage of women who meet the height requirement is__%.
(Round to two decimal places as needed.)
b. Find the percentage of men meeting the height requirement.
The percentage of men who meet the height requirement is__%.
(Round to two decimal places as needed.)
c. If the height requirements are changed to exclude only the tallest 5% of men and the shortest 5% of women, what are the new height requirements?
The new height requirements are at least__in. and at most__in.
(Round to one decimal place as needed.)
In: Statistics and Probability
A survey found that women's heights are normally distributed with mean 62.6 in. and standard deviation 2.2 in. The survey also found that men's heights are normally distributed with a mean 67.3 in. and standard deviation 2.8. Complete parts a through c below. a. Most of the live characters at an amusement park have height requirements with a minimum of 4 ft 8 in. and a maximum of 6 ft 2 in. Find the percentage of women meeting the height requirement. The percentage of women who meet the height requirement is %. (Round to two decimal places as needed.) b. Find the percentage of men meeting the height requirement. The percentage of men who meet the height requirement is %. (Round to two decimal places as needed.) c. If the height requirements are changed to exclude only the tallest 5% of men and the shortest 5% of women, what are the new height requirements? The new height requirements are at least in. and at most in. (Round to one decimal place as needed.)
In: Math
Review Question
1. What is sales revenue forecasting?
2. What types of data are needed to forecast sales or revenues?
3. What is cost estimation?
4. What is the first step managers need to complete when estimating costs?
20. How does technology affect costs?
22. Identify three environmental factors that affect business decisions related to costs.
25. How does technological innovation generally affect a firm' s costs?
27. What is meant by the learning curve?
28. What are controllable costs?
Exercise and Problems
6. Mega Profits Company estimated its annual total cost function to be: Y = $150,000 + $.57 x Assuming that Y represents total cost and x equals the number of units sold, use this equation to answer the following questions:
a. What is the firm' s total fixed cost?
b. What is the firm' s variable cost per unit?
c. Compute total costs if the firm sells 100,000 units.
d. Compute total costs if the firm sells 200,000 units.
e. If the firm' s product sells for $1.00, how many units does the firm need to sell to break even?
f. If the firm' s product sells for $1.50, how many units does the firm need to sell to break even?
7. Morrison Hotel uses its banquet room to host parties, dinner dances, and business meetings. The hotel serves meals and provides a variety of services for each event. A local consultant analyzed recent cost data and estimated the total cost function per event to be as follows: Y = $1,000 + $9.00 x Assuming that Y represents total cost and x equals the number of guests, use this equation to answer the following questions:
a. What is the firm' s total fixed cost per event?
b. What is the firm' s variable cost per guest?
c. Compute total costs if 50 guests attend the event.
d. Compute total costs if 100 guests attend an event.
e. If the hotel charges $25.00 per guest, how many guests must attend for the hotel to break even at each event?
f. If the hotel charges $28.00 per guest, how many guests must attend for the hotel to break even at each event?
g. If the hotel charges $28.00 per guest, would you advise this hotel to host events for 50 or fewer guests? Why or why not?
3. Durango Mountain Bike Company wants to open a bicycle repair shop in a suburb of a major metropolitan area. The industry association estimates that 20 percent of bicycles are repaired by similar service companies and that the average owner spends $100 per bicycle on maintenance each year. The census and local chamber of commerce data indicate that there are 10,000 bicycles in the county. Three other competitors exist within a twenty-five-mile radius of the proposed business location. Based on a consumer survey, the owners believe that they can capture 30 percent of the market in the first year of operation. Based on these data, address the following requirements:
a. What is the potential number of bicycles likely to be commercially repaired?
b. What is the total potential bicycle repair revenue available in the market?
c. How much revenue can Durango Mountain Bike expect to generate?
In: Accounting