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business
management in the hospitality industry

Questions and Answers of Management In The Hospitality Industry

Min Lee is considering signing a 10-year lease for her Asia Garden Inn. Her two best alternatives are as follows:Alternative #1 Alternative #2 Monthly rent $2,000 7% of sales Energy costs Paid by
Jackie Cochran, owner/manager of The French Bakery, must decide whether to accept the new lease arrangement proposed by the owner of the building from whom her firm leases space. The current lease
Cecil Copeland, owner of Copeland’s Place, must renew his 5-year building lease in three months. For the past 5 years, he has paid the lessor $4,000 per month. The lessor has suggested that Cecil
The Red Cedar Eatery (RCE) has signed a 5-year contract with Mall, Inc. for 2,000 square feet of space in the Green Lake Mall. The contract requires payments of $2,000 per month payable on the first
Don Hicks leases the building in which his restaurant is located. For the past 5 years, he has paid rent of $4,000 per month. The lessor has proposed 2 alter- native rental payment plans for the next
Rosa Soliz, owner of the new Spanish Café, signed a building lease for 3 years for $1,000 per month on April 1, 20X4. She has paid $3,000 for the first 3 months’rent covering April-June,
What are three major advantages to leasing property and equipment as opposed to borrowing funds and buying?
What are the advantages and disadvantages to the seller/lessee with a sale and leaseback?
What is a leveraged lease and who are the parties involved?
How are capital leases accounted for when the lease is signed? (Assume the initial payment is made at the signing of the lease.)
What are the four criteria established by the FASB for determining if a lease should be capitalized?
What are the major differences between operating and capital leases?
What constitutes default on a lease?
What are executory costs? Which party to the lease is responsible for their direct payment?
Which of the four lease payment schedules do you prefer? Why?
What are four lease payment schedules common to leases in the hospitality industry?
Mr. Glen Wallace has owned the Naples Hotel for 3 years. He is concerned that the property is underperforming, yet is unsure of where the problems are. He has contacted you to learn about the hotel
You have been hired by Strategic Real Estate Inc. to evaluate their two hotels, the Starlight and the Moonbright. You have been provided with the following PACE reports for the month of
PACE Report Clearmont Hotel January 2004 Rooms Rooms Sold Total Rooms Sold Rooms Sold to Same Sold this Date this Month Last Last Year to Month Month Year Year Date 75 75 50 50 220 430 130 220 Mar
The Hills Lake Hotel is a 400-room property. The goal for June was to have an 85% occupancy rate for the month’s 30 business days. The budgeted labor to clean the rooms was $7/hour, allowing
Charleton Weston has owned the Foxfire Inn for several years. He feels the need for an asset management plan for his property.Required:Write a memo to Mr. Weston describing the key areas to be
In performing a revenue evaluation for a property, what are the key areas that should be covered?
How does the asset management company assist owners with their “agenda” for the operation?
Name the professional fees that one might encounter in the audit of a property.
What areas of insurance should be investigated for a lodging property during the operations audit?
List the major areas of revenue that should be evaluated in the normal lodging operations audit.
What are the major revenue market segments that need to be evaluated in the normal lodging operations audit?
What is the difference between efficiency and effectiveness in evaluating a hospitality operation’s goals and objectives?
How is the role of the asset management company different from that of an Independent lodging management company?
Explain the role of asset management companies in the operations audit process.
What does asset management encompass for a lodging property?
The financial information for the Rosa Café is as follows:Budgeted Cash Sales Charge Sales August $32,000 $16,000 September 26,500 13,000 October 28,000 13,000 November 28,000 12,000 December 30,000
A monthly cash budget for Mable’s Market for the first quarter of 20X2 needs to be prepared. Cash on January 1, 20X2, is $10,000. The firm desires to maintain a minimum balance of $10,000 at the
The Nathan Corporation, owner of a 200-room lodging facility catering to corporate bookings only, is considering relaxing its credit standards.Charlie Nathan believes they could sell an average of
Selected financial data is provided for the 100-room Brooklyn Hotel as follows:20X1 20X2 20X3 20X4 20X5 A. Budgeted pretax income (loss) ($20,000) $70,000 $100,000 + — $200,000 B. The cost of
Natalie Rae, owner of the Rae Café, has requested your assistance in preparing a 3 year cash budget. She provides the following financial data:20X1 20X2 20X3 Budgeted pretax income $(20,000) $-0-
You have been hired by Childers Associates to help its finance department prepare a cash budget for a hotel they just purchased. They have provided the following information to assist you.20X1 20X2
Carol Zink of Zink Hotels has $10,000 of excess cash to invest fora 270-day period. The investment opportunities are as follows:@ Certificate of deposit: 8% /annum# Treasury bill: 8% discount rate%
The Leasco Station projected sales of $100,000, $120,000 and $110,000 for the months of October-December, respectively. Its sales on the average are 40% cash sales and 60% charge sales. Generally,
The Fair Meadows Motel borrowed funds of $30,000 from the Rocky Hills Bank for 1 year. The annual interest rate is 8%. The bank requires the motel to have a compensating balance of $5,000 in its
Cody Murphy, the manager of the Murphy Motel, reports that there were changes during July in several current accounts as follows:1. Accounts receivable increased by $4,000.2. Inventory increased by
J. D. Chamberlain has recently negotiated a working capital loan of $500,000 for Jarol Hotels. The loan agreement has a stated annual interest rate of 12%. In addition, Carol Farmer, the vice
The Buher Company owns four hotels in a midwestern state. In the past, each hotel had its own separate payroll account. John Buher, the owner and managing partner, has decided to prepare payroll at
A $5,000 Treasury bill has a maturity date 270 days hence and is issued at a dis- count rate of 10%. A second $5,000 Treasury bill has a maturity date 165 days hence and is issued at a discount rate
Jan Buckingham, owner of Buck’s Corporation, realizes that checks received through the mail do not reach the bank on a timely basis. She wants to deter- mine whether a lockbox system is
Kate Gay is anew accountant with Grass Hill Resorts and is unfamiliar with cash discounts. She has been offered terms of 1/10, 2/60 and turns to you for help.Required:1. Explain what 1/10, 1/60
How is an effective interest rate determined when a cash discount is available?
What is a lockbox system? What are the major reasons for using one?
What is float? How does it affect a firm’s cash?
What factors should be considered in establishing a desired minimum cash balance?
When is each cash budget approach preferred?
How do the two basic approaches to preparing a cash budget differ?
What are the major purposes of cash budgets?
Why do hospitality enterprises generally have lower current ratios than many non-hospitality businesses?
What are the elements of a cycle of operations for a food service operation?
John Spencer has just negotiated a 10-year loan for his Elite restaurant. He borrowed $5,000,000 with a stated semiannual rate of 3% with payments due every 6 months. The loan allows him to refinance
Sue Wentworth has just negotiated a $50,000 loan with the Universal Bank for the purchase of equipment. The loan is for 5 years at 6% interest with payments to be made annually.A. What is the amount
Kelly Freeman and her sisters are in the process of purchasing a franchised fast-food operation. They expect to have losses in the first 2 years of operation, which they would like to recognize on
John Brawning was successful in getting a 10-year commercial loan for $12,000,000 for the purchase of the Clearwater Inn. The terms of the loan are quarterly interest of 2% per quarter with payments
Lawrence Underwood is considering the purchase of Horton Bay Inn. He may or may not have partners in the venture. He has come to you for advice on the issue Of limited liability. Explain to Lawrence
Tillman Bragg has just received a 15-year mortgage loan for his newly acquired Sundowner Inn. The purchase was financed with an $8,000,000 loan with a stated quarterly interest rate of 2%. Payments
Ziegler Corporation (ZC) borrowed $100,000 for a 5-year period 2 years ago.The annual interest rate is 12% with quarterly payments. The amortization rate is based on a 10-year period.ZC has the
George Webster is considering building a fine-dining restaurant in Nappy Valley. He has had the following recommendations from his advisors as to the form of business organization:Wil Shirley, lawyer
Lloyd Karr and John L. Smith are considering the purchase of a 200-room hotel. They are unsure as to the best operating form for their business. Write a memo to them describing the differences
A restaurant has been presented with the following two possible repayment schedules for a $150,000 loan:A. Quarterly payments at a stated quarterly interest rate of 3% paid off over 5 years.B.
What are the basic differences between BIDCOs and SBICs?
Briefly explain the five C’s of credit.
Besides a commercial bank, what other sources of capital might be avail- able to the entrepreneur?
If an individual is seeking to buy an existing hospitality business, what quantitative historical information might a bank be interested in?
What is the difference between qualitative and quantitative information that a commercial lender may require for a loan? Give some examples of qualitative information.
What are the most important regulatory considerations that ought to be researched when investigating a new hospitality venture?
What specific items ought to be included in the financial management por- tion of the business plan?
List the key elements that should be included in any good business plan.
List the common characteristics of entrepreneurs.
What are the major reasons for the entrepreneurial explosion in the last ten years?
Explain why your results for Problem 11.2 are not likely to hold in the real world.
Assume all of the information in Problem 11.1 holds true except that the market imperfection of taxes exists and that the Leland Hotel's tax rate is 40%.Required:1. Calculate the weighted average
Assume that the Leland Hotel operates in a world with perfect financial markets. In this world, the Leland’s cost of equity capital, kg, varies in direct proportion to its use of debt as follows:kp
Is it correct to say that, since the interest on debt capital is tax deductible and the dividends on equity capital are not tax deductible, it is always cheaper to finance projects with debt? Why or
What is the difference between value creation and value maximization?Which concept more accurately describes capital structure?
Why do hospitality firms sometimes try to match the maturities of their debt and assets? How do they do this?
Have leverage ratios in the hospitality industry been stable or unstable in the past? What are the implications of this?
How does debt financing affect a hospitality firm’s weighted average cost of capital (k,), both when it is first introduced and as increasing amounts of debt financing are used?
How does costly financial distress affect the value of the firm?
Does capital structure affect firm value in a perfect market? Why or why not?
What is a perfect market? How is it a useful concept?
What are the four main issues involved in choosing the best course of ac- tion in raising funds to finance hospitality projects?
Consider again the information concerning the Hospitality Investment, Inc., project in Problem 9.10 in Chapter 9.Reguired:1. Calculate the payback period for all three options.2. On the same graph,
Consider again the information concerning the Bluenwhyte Restaurant project in Problem 9.9 in Chapter 9.Reguired:1. Calculate the payback period for each alternative.2. On the same graph, plot the
Consider again the information concerning the Springfever Restaurant in Problem 9.8 in Chapter 9.Required:1. Calculate the project’s payback period.2. Calculate the project’s IRR and state
The Northport Hotel is trying to estimate the ROA on a proposed dining room expansion. The expansion project is expected to generate the following annual net cash inflows:+$50,000 +$50,000+$50,000
The Old Salty Dog Restaurant is considering an investment in a new com- puterized bar. For the two bar systems under consideration, management has estimated the following relevant annual net cash
The Beaver Island Resort is evaluating two alternatives for anew marina. The manager has estimated the following annual net cash flows for each alternative:Year Alternative 1 NCF Alternative 2 NCF 0
A restaurant is studying the feasibility of building a banquet facility. The project will cost $175,000 (at time 0) and the net cash inflows on the project will be as follows:Year Cash Inflow il $
A hotel is considering the renovation of its laundry. The investment cost (all spent at time 0) will be $200,000 and the after-tax cash savings will be $50,000 per year for 6 years. There are no
A project costing $1,500,000 will yield the following net income after tax for the next 5 years:Year Net Income 1 $100,000 2 $125,000 3 $130,000 4 $140,000 5 $160,000 Required:Calculate the ROA as an
Suppose you are considering investing $100,000 in a restaurant. The annual net cash inflows over 4 years are $10,000, $30,000, $40,000, and $60,000 respectively.Required:Calculate the payback period
If the NPV technique and the IRR approach conflict, which technique should one follow? Why?
What reinvestment rate assumption is inherent in the internal rate of re- turn approach to capital budgeting? Why might it lead to decisions that conflict with the NPV approach?
What are three ways to calculate IRR?

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