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____ [38]
3 years ago
14

Welcome Inn Hotels is considering the construction of a new hotel for $90 million. The expected life of the hotel is 30 years, w

ith no residual value. The hotel is expected to earn revenues of $26 million per year. Total expenses, including depreciation, are expected to be $15 million per year. Welcome Inn management has set a minimum acceptable rate of return of 14%.
a. Determine the equal annual net cash flows from operating the hotel.
b. Calculate the net present value of the new hotel. Use 7.003 for the present value of an annuity of $1 at 14% for 30 periods.
c. Does your analysis support construction of the new hotel?
Business
1 answer:
steposvetlana [31]3 years ago
3 0

Answer:

a. Annual Net cash flows:

= Revenue - Expenses + Depreciation

= 26,000,000 - 15,000,000 + (90,000,000 / 30 years)

= 11,000,000 + 3,000,000

= $14,000,000

b. Net present value:

= Present value of cashflows - Investment cost

= (Annual cashflow * present value of an annuity, 14%, 30 periods) - Investment cost

= (14,000,000 * 7.003) - 90,000,000

= $8,042,000

c. Company should construct the hotel as it would bring a positive Net Present Value

Note: In "b" the cashflow was treated as an annuity because it is constant.

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g purchased a 25% stake in for $486,000 on Jan 2, 2021. On Jan 1, 2021, Satisfactory had a book value of equity on its balance s
stepladder [879]

Answer:

Perfection records in it's books an Investment in Associate of $486,000

Explanation:

Hi, your question has missing information, i tried to look for the full question online but I could not find it.

However, I have prepared below explanation to the problem.

When a firm has investments into another firm of less than 50% voting rights in stake but greater than 20% we say that firm has significant influent in the investee. The firm is said to have an Investment in an Associate.

Investments in Associates are always recorded using the Equity Method of Accounting.

<u>Entries for Investment in Associate are :</u>

Debit :Investment in Associate ($1,944,000 × 25%) $486,000

Credit : Share of profits of associate $486,000

Conclusion :

Perfection records in it's books an Investment in Associate of $486,000

4 0
3 years ago
A put option on a stock with a current price of $47 has an exercise price of $49. The price of the corresponding call option is
Sedbober [7]

Answer:

The answer is 5.559539 or 5.56.

Explanation:

From the given question let us recall the following statements

The current price of A put option on a stock  = $47

With an exercise price of $49

Annual risk-free rate of annual  interest is = 5%

The  corresponding  price call option is = $4.3

The next step is to find the put value

Now,

The Call price + Strike/(1+risk free interest) The Time to maturity =

Spot + Put price

Thus

The,Put price = Call price - Spot + Strike/(1+risk free interest)Time to maturity

When we Substitute the values, we get,

Put price = (4.35 - 47) + 49/1.05 4/12

Therefore, The  Put Price = 5.559539 or 5.56

4 0
3 years ago
Read 2 more answers
ABC Hardware store is open for business 350 days a year. Annual demand for a power cutter at this store is 700 units. Replenishm
BlackZzzverrR [31]

Answer:

102.47 and 20

Explanation:

What is economic order quantity?

EOQ or the economic order quantity is the level of inventory which is the most optimal level for reducing inventory costs. It assumes that the supplier will supply as and when required and follows a just in time policy.

Now that we are familiar with the concept, let's recall the formula:

EOQ= SQRT( 2* D *k /h)

D - Annual demand, which is 700

k - Replenishment cost, which is $15

h - holding cost, which is 10% of inventory value = 0.1 × $20 = $2

So, EOQ = SQRT(2 * 700 * 15/2) = 102.47 units

Reorder point  = daily demand * lead time + safety stock = 700/365*5+10=20 Units

7 0
3 years ago
Texas-Q Company produces and sells barbeque grills. Texas-Q sells three models: a small portable gas grill, a larger stationary
mixas84 [53]

Answer:

1.

<u>Sales mix</u>

Portable grills = 20000/75000 = 4/15 or 26.67%

Stationary grills = 50000/75000 = 2/3 or 66.67%

Smokers = 5000/75000 = 1/15 or 6.67%

2.

<u>Break even in units</u>

Overall = 2128500 / 66   = 32250 units

Portable = 32250 * 4/15 = 8600

Stationary = 32250 * 2/3 = 21500

Smokers = 32250 * 1/15 = 2150

Explanation:

1.

The sales mix is the proportion of sales in units that each product holds in the in relation to the total overall sales in units of all products. The sales mix is calculated as follows,

Sales mix proportion of Product A = Sales in units Product A/Total number of sales in units of all products

The total number of sales in units of all products is,

Total sales in units = 20000 + 50000 + 5000 = 75000 units

<u />

<u>Sales mix</u>

Portable grills = 20000/75000 = 4/15 or 26.67%

Stationary grills = 50000/75000 = 2/3 or 66.67%

Smokers = 5000/75000 = 1/15 or 6.67%

2.

We will compute the overall break even point in units in then divide it according to the sales mix to calculate the break even in units of each product.

To calculate the overall break even in units, we need to determine the weighted average contribution per unit.

Weighted average contribution per unit = 4/15 * (90 - 45)  +  2/3 * (200 - 130)  +  1/15 * (250 - 140)

Weighted average contribution per unit = 66

<u />

<u>Break even in units</u>

Overall = 2128500 / 66   = 32250 units

Portable = 32250 * 4/15 = 8600

Stationary = 32250 * 2/3 = 21500

Smokers = 32250 * 1/15 = 2150

5 0
3 years ago
Early in its fiscal year ending December 31, 2021, Morgan Manufacturing, Inc. (MMI) finalized plans to expand operations. The fi
inessss [21]

Answer:

Morgan Manufacturing, Inc.

The Land should be recorded at $1,1505,597 , calculated as follows:

Down-payment - $340,000

Note payable - $628,597 (the Present value of $740,000 in 2 years at 6% interest)

Title search, etc - $34,000

Demolishing Building - $84,000

Clearing & Grading - $64,000

Explanation:

Land is a fixed asset or capital asset.  It is a resource that is expected to generate future earnings.

All costs incidental to the land acquisition must be capitalized.  The fair value of the note payable on the land is determined by calculating the present value (PV) at 6% for 2 years, in order to reflect the time value of money despite the fact that interest was not payable.

8 0
3 years ago
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