ABC Hotel Limited (“ABCHL”) operates a small store selling spa oil. ABCHL sells each unit for $80. Variable costs per unit equal $40. Total fixed costs equal $460,000. ABCHL is currently selling 12,000 units per period. The management would like to earn net income of $80,000.

ABCHL considers whether a promotion campaign to be carried out in next year. The cost of the promotion campaign is $100,000. The expected increase in unit of sales is 20% and 30% if the selling price is $80 and $72 respectively.

(a) Compute:
(i) Contribution margin per unit in dollars.
(ii) Contribution margin percentage.
(iii) Break-even point in dollars.
(iv) Break-even in units.
(v) Sales units necessary to attain desired income of $80,000. (vi) Margin of safety ratio for current operations.

(b) Should ABCHL carry out the promotion campaign in next year. Justify your answer by showing all relevant calculations.

The following expenditures are related to land, land improvements, and buildings acquired for use in a business enterprise. Determine how they should be classified (building/land or both and direct or indirect).

1. Money borrowed to pay building contractors:
2. Payment for construction from note proceeds:
3. Cost of land fill and clearing:
4. Delinquent real estate taxes on property assumed:
5. Premium on 6-month insurance policy during construction
6. Refund of 1-month insurance premium because construction completed early
7. Architect’s fees on building
8. Cost of real estate purchased – land $200,000 and building $50,000
1. Commission fees paid to a real estate agent
10. Installation of fences around the property
11. Cost of razing and removing the old building
50. Proceeds from salvage of the old building
1000. Costs of parking lots and driveways
14. Cost of trees and other debris:

On January 1, 2017, James Airlines contracted with Sam Aircraft to construct an airplane to Jamess specifications at a cost of $2,500,000. During 2017, James paid Sam $400,000 on January 1, and another $450,000 on September 30. On January 1, 2017, James had borrowed $360,000 at 11% to partially finance the construction. The remaining amount was paid to Sam upon delivery of the airplane on June 30, 2018.

James has approximately $1,600,000 of additional debt outstanding at December 31, 2017 at an average interest cost of 12%. And at the end of December 2018, $ 345,000 of the construction loan and $1,500,000 of the additional debt was outstanding.

What is the total capitalized cost of the airplane under construction at the end of 2017?

What is the total capitalized cost of the completed airplane at the end of 2018?

For each of the following scenarios, list the purpose(s) of the visualization and the type(s) of visualization that would best fulfill the purpose(s). Justify your choice.

a. A stock analyst is showing a potential customer how projected returns from various mutual funds will affect the size of retirement savings over time.

b. A tax accountant is showing the CFO how the accumulated effect of asset depreciation differs using Modified Accelerated Cost Recovery System (MACRS)
depreciation, straight-line depreciation, accelerated depreciation, and units of production depreciation.

c. A marketing analyst prepares a viz to show which countries present the best opportunity for expansion to increase profits.

d. A corporate accountant is examining how much variability there is in individual customer spending in response to a social media campaign about company advances
in social responsibility.

e. A large conglomerate corporation operates businesses in several different industries. The CEO wants to see how much each industry contributes to the overall profits of
the corporation.

f. The manager of a movie theater wants to understand how attendance at his movie theater is affected by prices.

For each of the following scenarios, list the purpose(s) of the visualization and the type(s) of visualization that would best fulfill the purpose(s). Justify your choice.

(a) A stock analyst is showing a potential customer how projected returns from various mutual funds will affect the size of retirement savings over time.

b. A tax accountant is showing the CFO how the accumulated effect of asset depreciation differs using Modified Accelerated Cost Recovery System (MACRS)
depreciation, straight-line depreciation, accelerated depreciation, and units of production depreciation.

c. A marketing analyst prepares a viz to show which countries present the best opportunity for expansion to increase profits.

d. A corporate accountant is examining how much variability there is in individual customer spending in response to a social media campaign about company advances
in social responsibility.

e. A large conglomerate corporation operates businesses in several different industries. The CEO wants to see how much each industry contributes to the overall profits of
the corporation.

f. The manager of a movie theater wants to understand how attendance at his movie
theater is affected by prices.

1 ____( solve_R__RStudio )

You’ve been hired as a consultant for a new planned NYC “quadrathalon”, in which participants run from Hunter’s Point South Park in Queens to Socrates Sculpture garden, take a kayak from there to Roosevelt Island, swim from there to John Jay park on Manhattan, cycle across to the Boat Basin, then swim down to a concluding party at Riverside pier 1. The organizers are worried about pollution while swimming in the two rivers. Studies have show the East River has unacceptable pollution levels a percentage of time given by p_E in the data sheet, while the Hudson river has unacceptable levels p_H of the time. Assuming these probabilities are independent answer the following:

p_E = 52   p_H = 22   p_HE = 37

1. What is the probability of having only one river contaminated? (they can move the kayak section from one river to the other).
2. What is the probability of having neither river contaminated?

You have received new information: if the East River is contaminated, the chances of the Hudson river also being contaminated goes up to p_HE (Manhattan pollutes both).   Redo the questions above using this new information.

____( solve_R__RStudio )

You’ve been hired as a consultant for a new planned NYC “quadrathalon”, in which participants run from Hunter’s Point South Park in Queens to Socrates Sculpture garden, take a kayak from there to Roosevelt Island, swim from there to John Jay park on Manhattan, cycle across to the Boat Basin, then swim down to a concluding party at Riverside pier 1. The organizers are worried about pollution while swimming in the two rivers. Studies have show the East River has unacceptable pollution levels a percentage of time given by p_E in the data sheet, while the Hudson river has unacceptable levels p_H of the time. Assuming these probabilities are independent answer the following:

p_E = 52   p_H = 22   p_HE = 37

-What is the probability of having only one river contaminated? (they can move the kayak section from one river to the other).

-What is the probability of having neither river contaminated?

You have received new information: if the East River is contaminated, the chances of the Hudson river also being contaminated goes up to p_HE (Manhattan pollutes both).   Redo the questions above using this new information.

You’ve been hired as a consultant for a new planned NYC “quadrathalon”, in which participants run from Hunter’s Point South Park in Queens to Socrates Sculpture garden, take a kayak from there to Roosevelt Island,  swim from there to John Jay park on Manhattan, cycle across to the Boat Basin, then swim down to a concluding party at Riverside pier 1.  The organizers are worried about pollution while swimming in the two rivers.  Studies have show the East River has unacceptable pollution levels a percentage of time given by p_E in the data sheet, while the Hudson river has unacceptable levels p_Hof the time.  Assuming these probabilities are independent answer the following:

p_E =  52  p_H =  22   p_HE = 37

1. What is the probability of having only oneriver contaminated? (they can move the kayak section from one river to the other).
2. What is the probability of having neitherriver contaminated?

You have received new information: if the East River is contaminated, the chances of the Hudson river also being contaminated goes up to p_HE(Manhattan pollutes both).   Redo the questions above using this new information.

Problem 26-01
Investment Timing Option: Decision-Tree Analysis

Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investment of $16 million. Kim expects the hotel will produce positive cash flows of $2.72 million a year at the end of each of the next 20 years. The project's cost of capital is 12%.

1. What is the project's net present value? A negative value should be entered with a negative sign. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Kim expects the cash flows to be $2.72 million a year, but it recognizes that the cash flows could actually be much higher or lower, depending on whether the Korean government imposes a large hotel tax. One year from now, Kim will know whether the tax will be imposed. There is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $1.44 million. At the same time, there is a 50% chance that the tax will not be imposed, in which case the yearly cash flows will be $4 million. Kim is deciding whether to proceed with the hotel today or to wait a year to find out whether the tax will be imposed. If Kim waits a year, the initial investment will remain at $16 million. Assume that all cash flows are discounted at 12%. Use decision-tree analysis to determine whether Kim should proceed with the project today or wait a year before deciding.
   -Select-It makes sense to proceed with the project today.It makes sense to wait a year before deciding.

Perry plc is a large conglomerate company structured on a divisional basis. It seeks to maximise investor wealth. Head office avoids day to day involvement in divisional affairs and only intervenes if performance is considered unsatisfactory. Divisional performance is measured by residual income.

One of Perry’s larger divisions operates a chain of high-class hotels throughout the United Kingdom. The division’s mission statement is ‘To be the hotel of the first choice for business users and tourists’. Although the chain has generally been popular with tourists it is not proving quite so popular with business users and conference organisers. Competition in the top segment of the hotel market is fierce, with customers expecting the highest standards of facilities, service, and catering. Over the last two years, the division has invested a large amount of money in modernising its hotels including the improvement of bedrooms and public rooms, installation of gymnasia and swimming pools and the information technology features required by business travelers. A large amount of money has also been spent on staff training to improve service levels and on a television advertising campaign to promote improved hotels to business users.

Head office is concerned that the performance of the hotel chain appears to have declined over the last few years despite this expenditure.

         The following figures are available

The cost of capital applicable to the hotel division is 20% per annum

Required:

1. Calculate the residual income for the hotel chain for each of the three years.
2. Discuss three advantages and four disadvantages of residual income as a divisional performance measure.                                                                                                     ( 7 marks)