Sea Pines Calculation
"SPV also earns finders fees equal to 20% of each rental amount (before tax, resort fees, and reservation fees). The amount of the finders fees depends on the rental amount, which varies with the size and location of the villa, the duration of the stay, and the time of year of the stay. The owners are responsible for paying the finders fees, and SPV receives this money out of the owners distributions when the rental monies are released from escrow."
"SPV management has become increasingly concerned over how they would handle a major disaster. Their location is susceptible to hurricanes, and they want to be prepared. Their policy states that guests can receive a refund or apply their rental to a future date if the island closes for any reason. Furthermore, they are not only concerned about losing the fees from lost rentals during a closure, but also about their ability to pay for repairs on behalf of the owners to make villas rentable. A recent survey of villa owners indicated that 13 of the 42 villas do not carry insurance that would cover hurricane damage. In addition, state and federal agencies do not provide relief for these properties because they are not primary residences. Thus, it would fall to SPV to pay the bills up front and collect from the owners and/or be reimbursed out of future rentals. Of course, not all units would sustain major damage. SPV also has a high-limit business credit card that can be used to pay for the vast majority of upfront costs. Local contractors, however, are more likely to prioritize work on damaged SPV units if they receive some money up front to cover the cost of contractor supplies and labor. After consultation with three of its most used contractors, SPV estimates that having US$3,000 per unit (US$126,000 total) in cash would be sufficient to begin immediate repairs. In addition, SPV believes that US$50,000 would be ample to provide for payroll and other continuing costs and sustain the business."
QUESTION
Question 1 that needs answered:
Table 1. Summary of Receipts and Payments for Sea Pines Villa Receipts (all receipts occur on the 5th of the month) Resort Fees Amounts vary with amenities provided Reservation Fees Amounts vary based on the size of the villa rented Finders Fees 20% of the rental amounts (excluding resort fees, reservation fees, and taxes) Reimbursement from Purchases and Contractor Payments on Behalf of Owners Amounts vary based on payments made to contractors during the preceding month Miscellaneous Amounts vary but average about $150 per month Villa Cleaning Service Supplies and Welcome Packages Resort Gate Passes Health Club and Gym Passes Financial Processing Fees Payments Averages $90 per rental Averages $10 per rental Averages $30 per rental, paid the month following the rental $500 per month Averages 2.25% of the following month's total rental receipts (rental amount + resort fees + reservation fees) Varies with the month and the desires of the owners $21,900 per month Purchases and Contractors on Behalf of Owners SPV Administration and Overhead Note: All monetary values are represented in US dollars. ASSIGNMENT QUESTIONS You have been asked to assess SPV's preparedness for a disaster. In addition to the information provided in the case, SPV management has also provided you with the following expectations for August through October based on bookings and expected operations. August September October November 152 148 96 61 $205,000 $183,000 $147,000 $67,125 $7,420 $5,630 Expected number of rentals Expected rental amounts Expected resort fees Expected reservation fees Expected purchases and contractor payments on behalf of owners $10,485 $17,550 $9,590 $16,040 $12,080 $9,950 $26,500 $25,100 $23,700 $24,130 Note: All monetary values are represented in U.S. dollars. SPV management expects to have 145 rentals during July and a cash balance of US$253,100 on August 5, after receiving amounts due fro the owners but before any August payments are made. QUESTION 1: CASH AVAILABILITY Using Excel, prepare a cash budget for August, September, and October to assess whether or not SPV has ample cash to respond to a disaster in any of those three months. Summarize your findings. Make specific recommendations, if needed. QUESTION 2: DISASTER-RECOVERY PLAN Outline a disaster-recovery plan for SPV. A complete plan should include: (1) Preventive steps. (2) Items to be addressed in the hours immediately before disaster onset (if possible), and (3) Steps taken immediately following the disaster. Since the primary concern is a hurricane, you can assume a 48-hour window between notification and the bridge to the island closing. | July August September October November 145 Expected rentals Expected rental amounts Expected resort fees Expected reservation fees 152 148 96 61 $ 205,000 $183,000 $147,000 $ 67,000 10,485 9,590 7,420 5,630 17,550 16,040 12,080 9,950 Cash Balance Before Receipts $ 253,100 $ 253,100 $253,100 20.00% Receipts: Resort Fees Reservation Fees Finders Fees Key Keeping Fees Contractor Payments on behalf of Owners Miscellaneous Total Receipts on the 5th of the month $ $ Cash Balance after Receipts $ 253,100 $ 253,100 $ 253,100 Payments: Villa Cleaning Service Supplies and Welcome Packages Resort Gate Passes Health Club and Gym Passes Financial Processing Fees Purchases and Contractor Payments on Behalf of Owner SPV Administration and Overhead Total Payments $90 $10 $30 500 2.25% 21900 $ $ Cash Balance after Payments Desired Cash Balance Excess (Deficiency) $ 253,100 $ 253,100 $ 253,100 176,000 176,000 176,000 $ 77,100 $ 77,100 $ 77,100 Table 1. Summary of Receipts and Payments for Sea Pines Villa Receipts (all receipts occur on the 5th of the month) Resort Fees Amounts vary with amenities provided Reservation Fees Amounts vary based on the size of the villa rented Finders Fees 20% of the rental amounts (excluding resort fees, reservation fees, and taxes) Reimbursement from Purchases and Contractor Payments on Behalf of Owners Amounts vary based on payments made to contractors during the preceding month Miscellaneous Amounts vary but average about $150 per month Villa Cleaning Service Supplies and Welcome Packages Resort Gate Passes Health Club and Gym Passes Financial Processing Fees Payments Averages $90 per rental Averages $10 per rental Averages $30 per rental, paid the month following the rental $500 per month Averages 2.25% of the following month's total rental receipts (rental amount + resort fees + reservation fees) Varies with the month and the desires of the owners $21,900 per month Purchases and Contractors on Behalf of Owners SPV Administration and Overhead Note: All monetary values are represented in US dollars. ASSIGNMENT QUESTIONS You have been asked to assess SPV's preparedness for a disaster. In addition to the information provided in the case, SPV management has also provided you with the following expectations for August through October based on bookings and expected operations. August September October November 152 148 96 61 $205,000 $183,000 $147,000 $67,125 $7,420 $5,630 Expected number of rentals Expected rental amounts Expected resort fees Expected reservation fees Expected purchases and contractor payments on behalf of owners $10,485 $17,550 $9,590 $16,040 $12,080 $9,950 $26,500 $25,100 $23,700 $24,130 Note: All monetary values are represented in U.S. dollars. SPV management expects to have 145 rentals during July and a cash balance of US$253,100 on August 5, after receiving amounts due fro the owners but before any August payments are made. QUESTION 1: CASH AVAILABILITY Using Excel, prepare a cash budget for August, September, and October to assess whether or not SPV has ample cash to respond to a disaster in any of those three months. Summarize your findings. Make specific recommendations, if needed. QUESTION 2: DISASTER-RECOVERY PLAN Outline a disaster-recovery plan for SPV. A complete plan should include: (1) Preventive steps. (2) Items to be addressed in the hours immediately before disaster onset (if possible), and (3) Steps taken immediately following the disaster. Since the primary concern is a hurricane, you can assume a 48-hour window between notification and the bridge to the island closing. | July August September October November 145 Expected rentals Expected rental amounts Expected resort fees Expected reservation fees 152 148 96 61 $ 205,000 $183,000 $147,000 $ 67,000 10,485 9,590 7,420 5,630 17,550 16,040 12,080 9,950 Cash Balance Before Receipts $ 253,100 $ 253,100 $253,100 20.00% Receipts: Resort Fees Reservation Fees Finders Fees Key Keeping Fees Contractor Payments on behalf of Owners Miscellaneous Total Receipts on the 5th of the month $ $ Cash Balance after Receipts $ 253,100 $ 253,100 $ 253,100 Payments: Villa Cleaning Service Supplies and Welcome Packages Resort Gate Passes Health Club and Gym Passes Financial Processing Fees Purchases and Contractor Payments on Behalf of Owner SPV Administration and Overhead Total Payments $90 $10 $30 500 2.25% 21900 $ $ Cash Balance after Payments Desired Cash Balance Excess (Deficiency) $ 253,100 $ 253,100 $ 253,100 176,000 176,000 176,000 $ 77,100 $ 77,100 $ 77,100
