Brad Winston is the owner and operator of Fishing Unlimited, a charter fishing business operated out of Oregon Inlet, NC. Brad has been taking groups of guests offshore to fish for tuna and marlin for over 15 years. He purchased his current fishing boat when he started the business but now believes that a larger and better-outfitted vessel would allow him to increase the rate he charges per charter. Currently, he can carry a maximum of 6 guests while the larger boat will carry up to 8. The larger boat would also require him to take 2 deckhands on each outing, providing better service to his customers. The cost data for Brads business is shown in the table below.

Fishing Unlimited
Annual straight-line depreciation on boat	$ 8,300
($175,000 original cost $90,000 estimated resale value/20 years)
Fuel Cost (per hour)	$ 50
Insurance Premium (annual)	$ 1,900
Maintenance and Repairs (annual)	$ 3,500
Fishing Tackle and Gear (original cost)	$ 7,000
Tackle and Bait (per guest)	$ 20
Deck Hand wages (per hour)	$ 20
Dock Fees (annual)	$ 2,400
Captains License (annual)	$ 200
Food and Beverages (per guest)	$ 25
Professional Fees (per year)	$ 750
Dock Utilities (annual)	$ 1,200

Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel-efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500.

His fees for both the old and the new boat are as follows:

	Old Boat	New Boat
4 hours	$ 550	$ 600
6 hours	$ 650	$ 700
Full Day (9 hours)	$ 1,100	$ 1,200

Questions:

1. Which costs are relevant to Brads decision to purchase a new, larger boat?

Relevant costs are only those costs which will be affected, or which will change because of the business decision.

Out of the schedule of costs shown above, the following are relevant to Brad's decision to purchase a new, larger boat:

Fuel costs will reduce by 5%

Insurance premiums will increase by 12%

Maintenance & Repairs will not be incurred for the first 3 years

Deck hand wages will increase because 2 extra hands will be required

Dock fees will increase by 5%

The additional cost of tackle & gear will be a one-time expense, payable upfront. The realizable value today of the old boat is relevant, $80,000; not the book value, nor the anticipated resale value at the end of 20 years. The additional payment to his bank for the loan to purchase the new boat ($1500 as estimated by his banker) is also relevant.

2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?

3. Identify any unavoidable costs associated with the operation of Fishing Unlimited.

4. Calculate the revenue generated by a 6-hour trip with the old boat (6 guests) and the new boat (8 guests) and compare the two figures. Identify the costs that changed. What conclusion can you draw based on your analysis?

PLEASE HELP ME WITH QUESTION 2,3 and 4

THANK YOU