Question 1

(Show workings)

1.1 A firm’s capital structure comprises: R600 000 Equity and R400 000 long term debt. The cost of equity is 12% and the before tax cost of debt is 12%. If the firm’s tax rate is 30%, determine the firm’s weighted average cost of capital(WACC) and comment if the firm should accept a project if the internal rate of return is 12%.

1.2 Complete table attached

As a newly appointed store manager you are required to draw up a 3 month cash budget to present to your senior manager. The following information are provided: Use 800K, instead of 800 000.     

1. Total sales are projected to be R800 000 for month1 and increasing by 10% each month. 70% of the total sales are cash sales and the remaining 30% is collected the following month from debtors.(there was no amount owing prior to month 1)
2. Purchases are 60% of the total monthly sales, paid in the same month.
3. Rent to be paid will be R36 000 per month.
4. Salaries are expected to be R150 000 per month.
5. A machine will be bought for R50 000 cash in month 2.
6. The opening cash balance was R 56 000 in month 1.

B. Jane Botosan operates a Hostelworld in an area near Amsterdam. Depreciation on the hotel is $60,000 per year. Jane employs a maintenance person at an annual salary of $41,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night.

Instructions

1. DeterminethenumberofrentalsandthesalesrevenueJaneneedstobreak even using the contribution margin technique.

2. If the current level of rentals is 4,000, by what percentage can rentals decrease before Jane has to worry about having a net loss?

3. Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $68 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.

Hotel Sport is in the suburb of large metropolitan area near a sports complex that has a stadium suitable for baseball and soccer games. The 250-room independent hotel is a select-service property in the mid-range category. Its rate structure is simple:

Rack                                         $190

Weekend                                 $159

Low season/Government    $140

Groups (of 15+)                     $130

Best available rate                 $120

Late August is traditionally a slow season in the hotel and business picks up in September after area businesses and government offices are back in full gear. The sell rate in late August is the $140 low season rate. For the weekend of August 20 to 22 the forecasted occupancy is around 130 rooms. The reservations on the book are 90 guaranteed and 25 non-guaranteed reservations. The hotel expects 15 walk-ins.

Questions

1. It is July 29. What rate should the revenue manager approve to quote for reservation inquiries for the weekend of August 20–22?

2. Now it is July 30. One day later: The Major League Soccer Franchise of the city had just clinched a spot in the playoffs and the first game in the elimination round will be against a team from California, the L. A. Galaxy. They have the world’s most famous superstar, David Beckham, in its lineup on August 21. All the hotels in the city are filling up fast and phones with reservation inquiries are ringing off the hook at the Sport.

What rate should the revenue manager approve to quote now for group reservation inquiries for the weekend of August 20–22? Are there any stay control measures that should be considered?

Create an excel workbook for the following questions. Answer these questions under your Solver work for each respective problem.

1. Devos Inc. is building a hotel. It will have 4 kinds of rooms: suites where customers can smoke, suites that are non-smoking, budget rooms where the customers can smoke, and budget rooms that are non-smoking. When we build the hotel, we need to plan for how many rooms of each type we should have. The following are requirements for the hotel:

1. We want to figure out how many rooms of each type to build based on maximizing revenue if we fill up the hotel. We expect to charge $190 for a suite that is non-smoking and $140 for a budget room that is non-smoking. Smoking room customers for both suites and budget rooms will have to pay an additional $20 per night.
2. We can spend up to $7,500,000 on construction of our hotel. The cost to build a non-smoking budget room is $12,000. The cost to build a non-smoking suite is $15,000. It is $3,000 additional for a smoking room of either type for smoke detectors and sprinklers.
3. We require that the number of budget rooms be at least 1.5 times the number of suites, but no more than 3 the number of suites.
4. There needs to be at least 80 suites, but no more than 200.
5. Industry trends recommend that smoking rooms should be less than 50% of the non-smoking room and in addition, we require our builder gives us at least 4 smoking rooms.

Answer the following using your Solver answers:

1. How many of each room type should be built, and what would the revenue be for a night when our hotel was fully booked?
2. Without re-running Solver, what happens to our revenue if we get an additional $1,500,000 for building? Explain in words how you got this answer without re-running solver. Over what amount of construction costs can you use this procedure?
3. Over what range of room price can our budget non-smoking rooms vary over for us to get the same answer for the quantity of each type of room?

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 unit cost:

Dominatior unit cost:

Jill buys a house for $800k, lives there for exactly 10 years and sells it.

Suppose Jill’s annual cost of ownership is exactly equal to the annual rent she would have paid to live in the same house.

Suppose the price of Jill’s house grows 3.4% annually.

Buying expenses are 5% of purchase price and selling expenses are 8% of sale price.

Compute Jill’s annual IRR from owning net of renting.

(hint: look at the buy vs rent slides, assume no mortgage.)

Patricia Johnson is the sole owner of Crane Vista Park, a public camping ground near the Crater Lake National Recreation Area. Patricia has compiled the following financial information as of December 31, 2020. Revenues during 2020—camping fees $186,228 Fair value of equipment $186,228 Revenues during 2020—general store 86,463 Notes payable 79,812 Accounts payable 14,632 Expenses during 2020 199,530 Cash on hand 30,595 Accounts receivable 23,278 Original cost of equipment 140,336 (a) Determine Patricia Johnson’s net income from Crane Vista Park for 2020. Net income $enter Net income in dollars (b) Prepare a balance sheet for Crane Vista Park as of December 31, 2020. (List Assets in order of liquidity.) CRANE VISTA PARK Balance Sheet choose the accounting period Assets enter a balance sheet item $enter a dollar amount enter a balance sheet item enter a dollar amount enter a balance sheet item enter a dollar amount select a closing section name for this part of the balance sheet $enter a total amount for this part of the balance sheet Liabilities and Owner’s Equity select an opening name for section one enter a balance sheet item $enter a dollar amount enter a balance sheet item enter a dollar amount select a closing name for section one enter a total amount for this section of the balance sheet select an opening name for section two enter a balance sheet item enter a dollar amount select a closing name for this part of the balance sheet $enter a total amount for this part of the balance sheet

Comment on the relationship between 1920s-1940s economics and today's economic conditions. Are there any similarities that you notice? Any key differences?

Donna Shader, manager at the Winter Park Hotel, is considering how to restructure the front desk to reach an optmum level of staff efficiency and guest service. Presently, the hotel has five clerks on duty, each with a separate waiting line, during the peak check in time of 3:00 P.M to 5:00 P.M.

Observation of arrivals during this time show that an average of 90 guests arrive each hour (although there is no upward limit on the number that could arrive at any given time). It takes an average of 3 minutes for the front-desk clerk to register each guest.

Donna is considering three plans for improving guest service by reducing the length of time guests spend waiting in line.

The first proposal would designate on employee as a quick service clerk for guests registering under corporate accounts, a market segment that fills about 30% of all occupied rooms. Because corporate guests are preregistered, their registration takes just 2 minutes. With these guests separated from the rest of the clientele, the average time for registering a typical guest would climb to 3.4 minutes. Under plan 1, noncorporate guests would choose any of the remaining four lines.

The second plan is to implement a single line system. All guests could form a single waiting line to be served by whichever of the five clerks became available. This option would require sufficient lobby space for what could be a substantial queue.

The third proposal using an automatic teller machine (ATM) for check-ins. This ATM would provide approximately the same service rate as a clerk would. Given that initial use of this technology might be minimal, Shader estimated that 20% of customers, primarily frequent guests, would be willing to use the machines.

(This might be a conservative estimate if the guests perceive direct benefits from using the ATM, as bank customers do. Citibank reports that 95% of its Manhattan customers use its ATMs.) Donna would set up a single queue for customers who prefer human check-in clerks. This would be served by the five clerks although Donna is hopeful that the machine will allow a reduction to four.

Required:

1. Determine the average amount of time that a guest spends checking in.
2. What is the check in time under each plan?
3. What plan would you recommend.

2. Courtney Newell, manager of the Silver Park Hotel, is considering how to restructure the front desk to improve guest service during the peak check-in hours of 3:00 to 5:00 p.m. At present, the hotel has 5 clerks on duty each with a separate waiting line.

Courtney is considering two plans for reducing the guest’s waiting time. The first proposal would be to implement a single waiting line in which guests would be served by whichever of the 5 clerks becomes available first. Observations of arrivals during the peak check-in time show that a guest arrives on average every 40 seconds. It takes an average of 3 minutes for the front-desk clerk to register each guest.

The second proposal would designate one employee as a “quick-service” clerk for guests registering under corporate accounts, a market segment that comprises about 30% of Silver Park’s guests. Since these guests would be pre-registered, it would take an average of only 0.5 minutes for the front-desk clerk to register them. Under this plan, the non-corporate guests would form a single line and proceed to the first available of the 4 remaining clerks. The average time for registering a non-corporate guest is 3.4 minutes.

Which proposal should Courtney implement? Provide appropriate quantitative evidence to support your recommendation.