Reference no: EM13920905
"Ocean Adventures Co." is located near a beautiful beach in Southern California and has been known for its surf board rentals for many years (this is a fictional company, by the way). The company's manager has been contemplating for a long time to, at least temporarily, shut the surf board business down and switch to something more unusual, even if risky.
The company's manager initially spent a month researching the potential of a new business idea. This cost him $5,000 about a year ago. In addition, he recently hired a group of local consultants, to whom he paid $20,000, to analyze the local market regarding the potential of a new project. Very soon the consultants came up with a recommendation to sell all surf boards and replace the surf board rental with a sailing catamaran rental business.
To start the new business, the company will need to purchase 60 brand new sailing catamarans at $10,000 per each. Unlike surf boards, catamarans are more durable and it takes 15 years for each to fully depreciate (under MACRS). "Ocean Adventures Co." is currently planning to keep the new business for 7 years, and to shut the project down and sell all catamarans at the end of the 7th year. Currently, used catamarans can be sold in the market for an average of $1,500 per machine, and due to the growing popularity of this sport the price for used catamarans is expected to rise at an annual rate of 10 percent.
"Ocean Adventures Co." currently owns 400 surf boards, half of which were purchased ten years ago for $1,000 a piece and the remaining half five years ago for the same price. Each could be sold today at the market price of $300 a piece. Each surf board's normal economic life is ten years and each board depreciates at a constant rate each year to a zero book value at the end of its life.
The company expects that each year it will be able to rent each sailing catamaran to 500 customers at the price of $20 per person per hour. It assumes that each person will ride a catamaran for exactly an hour at a time. The company is hoping that the business will become very popular among the locals and so the number of customers would be increasing by 100 people each year. Miscellaneous fixed costs are expected to equal $20,000 each year. The cost of maintaining each catamaran will cost the company $8 per each catamaran rental. In order to cover unforeseen repair expenses, the company would need to immediately set aside $5,000 in cash, and it would need to increase this amount by $500 each following year. At the end of the final year of the sailing catamaran project the money would be recovered as the cash buffer would no longer be needed.
The corporate tax rate is 34%.
The riskiness of this project requires an 8% annual rate of return.
2. In the form of a table with "year0", "year1", "year2", etc. in the top row show your calculations of the total cash flow for each year and all of its important components.
|
Discuss the sociological implications of the trend
: From the e-activity article, there is a growing trend of people in the U.S. identifiyng themselves as biracial. Discuss the sociological implications of the trend. Explain why race and ethnicity shoudl be defining terms anbout an individual.
|
|
Fair sells snow cones
: A local vendor at the county fair sells snow cones for $.50 each. When 250 snow cones are sold, each snow cone is estimated to have $.10 in variable costs and $.15 in fixed costs.
|
|
Liabilities approximated their fair values
: On January 1, 2015, Morey, Inc., exchanged $178,000 for 25 percent of Amsterdam Corporation. Morey appropriately applied the equity method to this investment. At January 1, the book values of Amsterdam's assets and liabilities approximated their fair..
|
|
Cost of selling the baskets in their present condition
: Longview Baskets has in its inventory 2,000 damaged baskets that cost $20,000. The baskets can be sold in their present condition for a total of $12,000, or repaired at a cost of $7,000 and sold for a total of $25,000. What is the opportunity cost of..
|
|
Company will need to purchase
: To start the new business, the company will need to purchase 60 brand new sailing catamarans at $10,000 per each. Unlike surf boards, catamarans are more durable and it takes 15 years for each to fully depreciate (under MACRS). "Ocean Adventures Co."..
|
|
Total manufacturing costs
: Doggie Pals produces 100,000 dog collars each month that give off a fresh scent to keep your dog smelling clean between baths. Total manufacturing costs are $200,000. Of this amount, $175,000 are variable costs.
|
|
Percent interest in suburbia company
: Prime Industries acquired a 70 percent interest in Suburbia Company by purchasing 14,000 of its 20,000 outstanding shares of common stock at book value of $210,000 on January 1, 2016.
|
|
Investment in each stock
: Two stocks A and B. The anticipated annual return for a $1,000 investment in each stock has the following probability distribution. Probability Returns Stock A Stock B
|
|
Home theater components
: Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March
|