case study

Topics: Net present value, Discounted cash flow, Cash flow Pages: 2 (473 words) Published: January 10, 2014
Case 26.1
Separately evaluate the points raised by each of the two managers. Both managers have made opinions may require a more in depth look. Both have valid concerns with how the hotel currently operates as well as with the proposed suggestions might affect their departments.

The restaurant manager has reason for concern, because the better his restaurant does, the more operating cost is charged against them. The overall, costs related with the hotel have some areas looking healthier than they should, and other areas to looking worse than they should. The lounge manager takes issue with the fact her space is larger but that hotel guest use her space to relax and come in for free food or to watch the sunset. She does have a valid point to base the revenue on the square footage may not be the fairest way.

b) Suggest an approach to allocating the hotel's fixed costs among the various profit centers.

According to the text, fixed costs that are a joint benefit to several reasonability centers. These common costs cannot be traced to the centers deriving the benefit, except by arbitrary means. The level of these fixed costs usually would not change significantly even if one of the centers deriving benefits from these cost were discontinued. (Williams, Haka, Bettner, & Carcello, 2010, p. 971). So basically if they took the lounge out of the equation nothing would change. CASE 26.1

a) use exhibits 26-3 and 26-4 to help compute the net present value of the proposal to sell the existing equipment and buy the laser printer, discounted at an annual rate of 15 percent. In your computation, make the following assumptions regarding the timing of cash flows:    1.The purchase price of the laser printer will be paid in cash immediately    2. The $200,000 sales price of the existing equipment will be received in cash immediately    3. The income tax benefit from selling the equipment will be realized one year from today    4. Metro uses the straight-line...

References: Williams, J., Haka, S., Bettner, M., & Carcello, J. (2010). Financial & Managerial Accounting (15th ed.). New York: McGraw-Hill Irwin.
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