Cheap Stay Inc. is considering building a budget hotel that offers clean small rooms with bathrooms. They anticipate that the 120 rooms will rent for 36,000 room-nights per year. The market price for equivalent rooms is $60 per night. Cheap Stay estimates that the cost of capital will be $7,900,000 and they would like an annual return on 15%. Following are the estimated annual operating costs:

Variable operating costs $18 per room night

Fixed Costs:

Salaries and wages $450,000

Building maintenance 86,000

General administration 230,000

Total fixed costs $766,000

REQUIRED:

1. What is the full cost per room-night?

2. Can Cheap Stay Inc. meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.

3. A tour operator has offered $30 per room per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Cheap Stay Inc. accept this offer?

R& V Hotel is consistently incurring losses for the past 2 years though the sales clerk receives customer orders, raises sales invoices at a higher price and processes payments for customers. Hotel customers have contracted prices, however online trade prices automatically loaded in to the system but the Brenda clerk used to amend manually. Mr. Zakariya an internal auditor found some deficiencies, who has taken some necessary actions to cross check those invoices and employees responsibilities and suggested the management immediately to prevent from loss of customers and good will of the hotel.
Based on the above scenario:
1. How the internal audit for R and V hotel can be helpful in resolving the issues they are confronting at the moment? Justify your answer practically
2. If you were Mr. Zakariya, prepare doable audit plan that Mr. Zakariya that you can use for the company and provide recommendations on how to overcome the deficiencies cited in the case?

You are considering opening a drive-in movie theater and running it for ten years. You have spent after-tax $10,000 researching the land that will be used for theater, but if you take the project you expect to incur another immediate after-tax expense of $20,000 as you work with a consulting firm to decide how to most efficiently run the business.

The project entails an immediate $100,000 capital expenditure, which can be depreciated over 10 years. You expect to sell this capital investment for $25,000 at the end of the ten year project. Working capital expenses for the project are $50,000 immediately, $40,000 incurred two years from today, both of which are fully recovered in ten years (at the end of the project).

The project’s operating costs are expected to be $100,000 for each of the first five years and then (starting between t=5 and t=6) grow at -5% per year through the end of the project (i.e., through t=10). You expect the project’s revenues to start at $100,000 starting one year from today and remain constant for the life of the project.

1. (1 points) To determine the discount rate for the project, you have found an all-equity firm with a risk level similar to the company you’re starting. That firm’s equity has a standard deviation of returns of 35% and a correlation with the stock market of 0.8. The risk free rate is 4%, the expected market returns are 9.5% and the standard deviation of market returns is 28%. What is your estimated cost of capital?
2. (7 Points) You decide to use 10% as the project’s opportunity cost of capital (ignore your answer from part a). Your expected tax rate is 25%. What is the project’s NPV?
3. (2 points) You find out that the government is interested in buying the capital investment from you at the end of the project. Instead of selling it for $25,000 at the end of the project, the government will commit today to buying the capital from you for $75,000 post-tax ten years from today. You trust the government and think that this sale is risk free should you take the project. To what extent (if any) should the above information factor in to your decision regarding whether or not to open the theater? Does it change the NPV in any way, if so how? (hint: think of the capital investment as its own project – how will this affect the cash flows and/or the discount rate)

Suppose that a monopolist has a constant average total cost of production and marginal cost of production equal to $6, and has a demand for its product represented as

1. Calculate the total and marginal revenue for each quantity produced and sold
2. Find the profit-maximizing (optimal) quantity produced and sold and the price/unit.
3. Calculate the profit or loss at the optimal quantity of production and sales.

A manufacturer has recorded its cost of electricity (cost) and the total number of hours of machine use time (time) each week for a total of 52 weeks. Use the Mod7-1Data (Links to an external site.) to answer the following questions. USE α = 5%!

sample covariance=

sample correlation=

null hypothesis=

computed test statistic=

alternative hypothesis=

statistical conclusion=

What is the shape of a downstream oil and gas total cost curve and marginal cost curve, U-shaped or L-shaped? A graph illustration here will be a plus.

1. A cost that changes in total as output changes is a variable cost.

   True

   False

1. Managerial judgment is critically important in determining cost behavior.

   True

   False

1. The predetermined overhead rate is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver

   True

   False

1. If actual overhead is greater than applied overhead, the variance is called underapplied overhead.

   True

   False

1.   The direct method of allocation recognizes all interactions among support departments.

   True

   False

The marginal cost curve crosses the *

1 point

a. average total cost curve at the maximum of the average total cost curve.

b. average variable cost curve at the minimum of the average variable cost curve.

c. total cost curve at the minimum of the total cost curve.

d. average fixed cost curve at the minimum of the average fixed cost curve.

The average variable cost curve and average total cost curve tend to converge as output rises because *

1 point

a. the marginal cost curve intersects the average total cost curve at its minimum.

b. the average fixed costs are constant as output rises.

c. the difference between them (average fixed cost) declines.

d. output is rising more rapidly than inputs are being increased.

Monopoly and pure competition *

1 point

a. are alike in that entry is easy in both.

b. are alike in that entry is blocked in both.

c. differ in terms of the number of firms in the industry.

d. differ in that monopoly is associated with a standardized product and perfect competition associated with differentiated products.

With respect to entry and exit, monopolistic competition is *

1 point

a.characterized by free entry and blocked exit.

b. like pure competition in that entry and exit are free.

c. characterized by easy (though not free) entry and exit.

d. like pure monopoly in that entry is blocked.

An oligopoly is characterized by *

1 point

a. free entry and blocked exit.

b. few number of firms and blocked entry.

c. firms that sell homogeneous product but differentiated.

d. firms selling identical products but differentiated.

Suppose that the market for computers is dominated by a single firm, like IBM, that is able to exert influence over prices and output. This situation violates the perfect competition assumption of *

1 point

a. many buyers and sellers.

b. identical or homogeneous goods.

c. ease of entry and exit.

d. no differentiation.