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The Watree Lodge is struggling with cash flow and has been waiting until the last minute to pay its vendors. The Watree is a beautiful ski lodge located in a popular area, but during the summer months hotel guests become scarce and cash management becomes a major problem. Because the Watree is independently owned and operated, every once in a while, the owners must provide additional funds to carry the business over. Mr. Tom Broli has just been hired as the controller at the Watree and is in the process of analyzing all of its financial statements. The previous controller had to be replaced because he did not have an understanding of the business and knowledge of cash management. The general manager hired Mr. Broli because he heard that Tom was an experienced controller and very competent in financial management. Tom’s first goal is to look at cash forecasts to help him determine where he can make improvements. 1. From the information provided in the chart, determine available cash for the months of July, August, and September. Assume a beginning cash balance of $(10,000) in July. 2. How can this property better manage its working capital? Provide specific suggestions for Watree Lodge management.

The Watree Lodge is struggling with cash flow and has been waiting until the last minute to pay its...

 

 
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The Greenville Restaurant, which is independently owned and operated by the Greenlee Family, is located in a small historical town frequented by antique shoppers and other tourists attempting to glimpse at American history. Mr. Anderson Greenlee, son of the owners, recently graduated from a hospitality program in which he focused his studies on finance and accounting. While Mr. Greenlee wants to continue the family business, he would also like to branch out and open restaurants in other locations, perhaps even franchising the Greenville Restaurant. One of his first steps in this process is to evaluate the state of the restaurant’s working capital. He needs to get the current restaurant into good financial shape before venturing out and opening additional stores. Even though Anderson’s parents are good businesspeople, finance and accounting are not their strongest areas. Upon examining their records, he notices the following: ■ The Greenlees currently manage two bank accounts for their restaurant. One account is for immediate access to pay bills and does not draw any interest. The second account is strictly for savings to pay for problems that may arise, such as an oven going out. This savings account has an average balance of $10,000 and receives 0.5% interest. ■ The restaurant does a significant amount of catering business for local companies and allows them to pay half the bill up front. A bill is sent for the remaining 50%, which is payable within 30 days. Approximately 80% of these customers mail in their payments. ■ The Greenville Restaurant accepts MasterCard, VISA, and American Express credit cards as a form of payment. American Express is currently charging the restaurant a 6% fee on all transactions, while MasterCard and VISA are charging 5.5%. 1. Evaluate Greenville Restaurant’s banking situation. Can you give any tips to the restaurant to better manage their situation? 2. As the Greenlees open new restaurants what banking services are available to them? 3. How can the Greenlees better manage their credit card payments? How can they better manage fees as the business grows?

 

 
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The Fillis Bistro, operated by Brownstone Restaurants, Inc., is a fine dining restaurant that caters to those with discerning taste. The executive chef was trained in France and only uses the highest-quality organic ingredients. He even grows his own herbs in a garden behind the restaurant so he can serve the freshest food possible. Restaurant sales for the Fillis Bistro have leveled off over the last couple of years, and Brownstone is trying to determine the best method for expanding the business. Management has discussed several ideas for expansion, including increasing off-premise catering sales, opening a second operation, and scrutinizing costs to cut back expense, but they cannot agree on anything. Brownstone Restaurants, Inc. owns and operates over 20 restaurants on the east coast of the United States. These restaurants include The Fillis Bistro, 6 Mexican restaurants, 5 Chinese restaurants, and 8 Greek restaurants. All of the restaurants are operating at optimal levels and reaching budgeted financial projections. 1. Utilizing the information covered in this chapter, list all growth options available to Brownstone Restaurants, Inc. 2. Analyze each expansion option and discuss the positive or negative impacts they could have on the restaurant’s operations. 3. Which expansion option would you recommend to Brownstone Restaurants, Inc. and why?

 

 
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The Williams Bennett Hotel Development Co. has identified a historic bank building that could be converted into a hotel. The location is in the heart of downtown Smithton, a densely populated metropolitan city. The structure was designed by an acclaimed architect and built in 1913. The fifteen-story building will be transformed into a chic boutique hotel with the hotel lobby, meeting rooms, cafe´, and fitness area on the first two floors. The remaining thirteen floors will contain 130 guest rooms. The entire project will cost $35,000,000. Sixty percent of the project cost ($21,000,000) will be financed through debt, and $14,000,000 is being provided by equity investors. The lender is offering a favorable 12% interest rate on the $21,000,000, and the equity investors are requiring a return of 18% on their investment. The current business tax rate is 25%. Because the structure is historic, the Williams Bennett Hotel Development Co. has been in discussions with the city government to determine if there are any public incentives for redeveloping this property. The development company knows the hotel supply in Smithton is underserved and that the city needs additional rooms to attract larger convention groups. The city would also gain from additional jobs, which would lower the unemployment rate. There are obvious benefits for both the City of Smithton and the Williams Bennett Hotel Development Co. 1. Calculate the WACC and show step-by-step calculations for the weight of debt, cost of debt, tax effect, weighted cost of debt, weight of equity, cost of equity, and weighted cost of equity. 2. Explain the tax effect and its relation to the interest portion of debt service. 3. What subsidies can the government provide to the development company? 4. In this case, the city government offered Williams Bennett a tax abatement in the amount of $1,000,000, spread evenly over the first five years of operations. Explain how the tax abatement impacts the company’s ability to pay debt service.

 

 
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