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Hospitality Management Accounting 9th Edition Martin G Jagels, Catherine E Ralston - Solutions
Contrast the net present value and internal rate of return methods and explain how they can give conflicting rankings of investment proposals.LO1
Solve problems relating to the purchase versus the leasing of fixed assets.LO1
Discuss the ways in which long-term asset management differs from dayto-day budgeting.LO1
How is the accounting rate of return calculated? What is the major disadvantage of using this method?LO1
What is the equation for calculating the payback period? What are the pros and cons of this method?LO1
Under what conditions might a hotel consider buying an item of equipment with a rapid payback rather than one with a high accounting rate of return?LO1
Discuss the concept that money is worth more now than that same amount of money a year from now.LO1
How would you explain discounted cash flow to someone who had not heard the term before?LO1
In Exhibit 12.4, in the 11% column opposite Year 5, is the number 0.5935.Explain in your own words what this number or factor means.LO1
If an investment requires an outlay today of $10,000 cash and, over the 5-year life of the investment, total cash returns were $12,000, and the $12,000 had a present value of $9,500, would you make the investment? Explain.LO1
Contrast the NPV and the IRR methods of evaluating investment proposals.LO1
Under what circumstances might NPV and IRR give conflicting decisions in the ranking of proposed investments?LO1
Landscaping for a resort hotel is an investment for which the benefits might be difficult to quantify. In what ways might you be able to quantify them?Even if investment analysis (for example, NPV) proved negative, what other considerations might dictate that the investment be made?LO1
What factors, other than purely monetary factors, might one want to consider in a buy-versus-rent decision?LO1
Assume you are given the following information regarding a point-of-sale computer terminal: The net annual savings was calculated to be $1,400 on an average investment cost of $5,620. What is the accounting rate of return (ARR) on the terminal?LO1
Information is provided on two machines, which had an original cost of$28,400 for Machine X and $26,200 for Machine Y.a. Which is the best investment using the payback period method?b. Will either of the machines provide the cash investment back in less than 4 years?LO1 Machine X Machine Y Net
Investment in an item of equipment is $22,000. It has a five-year life and no salvage value and straight-line depreciation is used. The equipment is expected to provide an annual savings of $2,900, which does not include depreciation. What is the payback period?LO1
What is the net present value of $4,285 for each year of 2 years with a discount factor of 0.9009 in Year 1 and 0.8166 in Year 2?LO1
Assume an item of equipment is purchased at a cost of $22,800 to be paid for over 5 years, requiring a payment on principal of 20% per year at an annual interest rate of 12%. Complete a repayment schedule for each of the 5 years.LO1
Dinah, the operator of Dinah’s Diner, wishes to choose between two alternative investments providing the following annual net cash inflows over the five-year investment period:Calculate the payback time for each alternative, assuming an initial investment of $33,000 under each alternative.LO1 1
Using information from E12.6, complete an evaluation using NPV at 12%for both of the alternatives. Would either of the alternatives be a good investment for Dinah?LO1
You have the following information about three electronic sales registers that are in the market. The owner of a restaurant asks for your help in deciding which of the three machines to buy.Assume a 30% income tax rate and straight-line depreciation.a. Use the ARR method to decide which of the
Using the information provided in P12.1, which would be the best investment using the payback period method? If the owner wanted her cash back in less than 4 years, should she invest in any of the machines?LO1
An investor is planning to open a new fast-food restaurant. He has a 5-year lease on a property that would require an investment estimated at $205,000 for redecorating and furnishing. He would use his own cash.The present cost of capital (borrowed money) is 13%; use this percentage to determine the
A hotel manager wishes to choose between two alternative investments giving the following annual net cash inflows over a 5-year period:The amount of the investment under either alternative will be $70,000.a. Using the payback period method, in which year, under both alternatives, will she have
A restaurant operator wishes to choose between two alternative roll-in storage units. Machine A will cost $9,000 and have a residual value at the end of its 5-year life of $1,500. Machine B will cost $8,500 and at the end of its 5-year life will have a residual value of $700. Assume straight-line
Pete’s Pizza is planning to purchase a new type of oven that cooks pizza much faster than the conventional oven now used. The new oven is estimated to cost $20,000 (use straight-line depreciation) and will have a 5-year life, after which it will be traded in for $4,000. Pete has calculated that
You have to make a decision either to buy or to rent the equipment for your restaurant. Purchase cost would be $30,000. Of this amount,$7,500 would be paid in cash now, and the balance would be owed to the equipment supplier. The owner agrees to accept $4,500 a year for 5 years as payment toward
Pizza Restaurant provides a delivery service and is considering purchasing a new compact vehicle or leasing it. Purchase price would be$13,500 (cash), which the restaurant has. Estimated life is 5 years. Residual(trade-in) value is $2,500.Under the purchase plan, the additional net cash income
For many years, a motor hotel has been providing its room guests with room service of soft drinks and ice using the services of a part-time bellhop to deliver to the rooms. Typically, the service has been losing money.The average figures for each of the past few years are as follows:The motor hotel
A motel leases out its 1,000-square-foot coffee shop, although it continues to own the equipment. The lease is due for renewal. The motel could continue to rent the space for $2 a square foot per month for the next 3 years, and then $2.50 a square foot for the following 2 years.Alternatively, the
Discuss the value of a feasibility study and the information included in its nonfinancial sections.LO1
List and briefly discuss the four steps in hotel room supply and demand analysis.LO1
Calculate forecast rooms required from given demand information.LO1
Prepare pro forma income statements for rooms, food, and beverages from given information.LO1
Convert pro forma income statements to cash flow from given information.LO1
Evaluate the financial analysis projections of a feasibility study.LO1
Since a feasibility study for a proposed new venture cannot guarantee that the venture will be successful, of what value is such a study?LO1
In a feasibility study for a restaurant in a downtown office building, what general market characteristics do you think would be relevant?LO1
In preparing a feasibility study for a motor hotel to be located in an area where there are several other motor hotels, what factors would you consider to determine which of the other operations are the most competitive?LO1
A resort hotel is to be located in a mountain area near a major highway about 150 miles from the closest town or city. What sources of demand might you consider in a feasibility study for this property?LO1
Briefly describe how a composite growth rate of demand for hotel rooms can be calculated.LO1
Two similar competitive restaurants have quite different levels of demand(average total number of customers per day). What factors could cause this to be so?LO1
In preparing the pro forma income statement for a rooms department, how do you think the average room rate and occupancy figures could be established?LO1
In estimating total sales revenue for a coffee shop in a proposed new hotel, why is it important to begin by estimating sales revenue by meal period?LO1
What adjustments generally have to be made to the net income figures to convert them to a cash flow basis?LO1
In what way might a change in the depreciation method used affect the projected cash flow figures in a feasibility study?LO1
If the initial feasibility of a proposed new hotel does not appear good from a financial point of view, what variables might one try to change to improve the result?LO1
Explain the concept of budgeting.LO1
Define the three purposes of budgeting.LO1
Describe some of the types of budgets, such as departmental, capital, fixed, and flexible.LO1
Briefly discuss some of the advantages and disadvantages of budgeting.LO1
List and briefly discuss each of the five steps in the budget cycle.LO1
Briefly explain some of the limiting factors to keep in mind when budgeting.LO1
Define the term derived demand.LO1
Explain what information is required to determine budgeted sales revenue in a restaurant operation and budgeted room sales revenue in the rooms department of a hotel or motel.LO1
Prepare budgeted (pro forma) income statements, given appropriate information about estimated sales revenue and costs.LO1
Discuss ZBB with reference to decision units and the ranking process.LO1
Briefly discuss the pros and cons of ZBB.LO1
Use variance analysis to compare budgeted figures with actual results.LO1
Use mathematical techniques, such as moving averages and regression analysis, in forecasting.LO1
Explain the concept of budgeting.LO1
What are some of the purposes of budgeting?LO1
List and discuss three advantages of budgeting.LO1
Explain the difference between long- and short-term budgeting.LO1
Give an example of:a. A hotel departmental budgetb. A capital budget for a restaurant LO1
Explain the difference between a fixed and a flexible budget.LO1
Two of the steps in the budgeting cycle are establishing attainable goals and planning to achieve these goals. What are the other three steps?LO1
Discuss three possible limiting factors to consider in preparing a budget for a hotel or restaurant.LO1
A cocktail lounge had sales revenue in May of $40,000. Budgeted revenue was $42,000. List three possible questions that could be asked, the answers to which might explain the $2,000 difference.LO1
In projecting sales revenue for breakfast in the coffee shop of a hotel, what factors need to be considered?LO1
What is derived demand?LO1
List the four items that must be multiplied by each other to forecast total annual food sales revenue for the dinner period of a restaurant.LO1
What is a pro forma income statement?LO1
List three types of cost that are controllable with ZBB.LO1
Give an example of a decision unit in a hotel’s accounting office and write a one-sentence objective for that decision unit.LO1
Briefly describe the ranking process under ZBB.LO1
Give two advantages and two disadvantages of ZBB.LO1
Briefly explain how the use of a moving average works as a forecasting method.LO1
Using an example, explain what an unfavorable cost variance is.LO1
Using an example, explain what a favorable sales volume variance is.LO1
Explain the difference between a sales volume variance and a quantity variance.LO1
Briefly define and give examples of some of the major types of costs, such as direct and indirect costs, fixed and variable costs, and discretionary costs.LO1
Prorate indirect costs to sales revenue departments and make decisions based on the results.LO1
Use relevant costs to help determine which piece of equipment to buy.LO1
Use knowledge about fixed and variable costs for a variety of different business decisions, such as whether to close during the off-season.LO1
Define the term operating leverage and explain its advantages and disadvantages.LO1
Explain and use each of the following three methods to separate semifixed or semivariable costs into their fixed and variable elements: high–low calculation, multipoint graph, and regression analysis.LO1
Differentiate between a direct cost and an indirect cost.LO1
Define discretionary cost and give two examples (other than those given in the text).LO1
Differentiate between a fixed cost and a variable cost and give an example of each that is not in the text.LO1
Why are some costs known as semifixed or semivariable?LO1
Why might it be unwise to allocate an indirect cost to various departments on the basis of each department’s sales revenue to total sales revenue?LO1
What do you think might be the relevant costs to consider in deciding which one of a number of different vacuum cleaner models to buy for housekeeping purposes?LO1
Explain why you think it sometimes makes sense to sell below total cost.LO1
Define the term high operating leverage and explain why, in times of increasing sales revenue, it is more profitable to have high rather than low operating leverage.LO1
With figures of your own choosing, illustrate how the high–low calculation method can be used to separate the fixed and variable elements of a cost.LO1
Explain why the high–low method may not be a good method to use to separate the fixed and variable portions of a cost.LO1
Give a brief explanation of how to prepare a graph when using the multipoint graph method for separating the fixed and variable elements of a cost.LO1
If sales revenue is $6,800 and variable costs are $2,856, what is the variable cost percentage?LO1
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