Borders Hotel

Topics: Costs, Stock, Variable cost Pages: 2 (512 words) Published: April 23, 2013
Borders Hotel Corp
* Huron motor and borders hotel are close
* Huron motor mainly tourists
* Business increasing because of NAFTA
* What is the total investment? \$4.5million
* Working capital \$75,000
* Land \$975,000
* Building \$2,300,000
* Furnishings \$1,100,000
* Organization costs \$50,000
* Directors common share: 6 * 25,000 = 150,000
* They already have the land: \$975,000
* 10%, 5-yearloan: \$1.1 million
* In total they have secured \$2,225,000, remaining is \$2,275,000 (should total 4.5 million) * Option 1: 20-year term at 8% mortgage to raise 2,275,000 * Option 2: sale of 24 units of \$100,000 per unit with each unit consisting of 10,000 shares each minus legal cost (2,400,000-125,000=2,275,000) * Option 3: sale of 24 units of 3,000 preferred shares at \$25 and 2,500 common shares minus legal cost (2,400,000-125,000=2,275,000) | Option 1| Option 2| Option 3|

Asset| 4,500,000| 4,500,000| 4,500,000|
Legal cost(Capitalization)| | 125,000| 125,000|
Total Asset| 4,500,000| 4,625,000| 4,625,000|
10% 5-year loan| 1,100,000| 1,100,000| 1,100,000|
8% 20-year loan| 2,275,000| 0| 0|
8% @ \$25 preferred| 0| 0| 1,800,000 (3,000*25 *24)|
Common shares| 1,125,000(150,000+975,000)| 3,525,000(1,125,000 +2,400,000)| 1,725,000(1,125,000 + 600,000)| # of common shares| 112,500 @ \$10| 352,500| 172,500|
# of shares owned by Karen| 100,000(975,000 +25,000)| 100,000| 100,000|

* In option 1 Karen will have control over most of the profit because she owns majority of the shares * Option 1 has the most probability to go bankrupt because of the 20 year loan (very risky) * Option 3 has preferred shares and therefore if the dividends were passed for 2 consecutive years, the preferred shares could elect a majority of the board of directors (very risky) | 100% occupancy...