User Account

All Pages

Decide whether or not sunny should undertake the investment

Assignment Help Corporate Finance
Reference no: EM13208110

Sunny Hotels plc owns a successful chain of hotels. The company is considering diversifying its activities through the construction of a theme park near Reduit. Thetheme park would have a mixture of family activities and adventure rides. Sunny hasjust spent Rs400,000 on market research into the theme park, and is encouraged bythe findings.

The theme park is expected to attract an average of 1,500 visitors per day for at least four years, after which major new investment would be required in order to maintain demand. The price of admission to the theme park is expected to be Rs180 per adult and Rs100 per child. 60% of visitors are expected to be children. In addition to admission revenues, it is expected that the average visitor will spend Rs80 on food and drinks, (of which 30% is profit), and Rs50 on gifts and souvenirs, (of which 40% is profit). The park would open for 360 days per year.

Except for maintenance, construction costs and the realisable value of fixed assets, all other costs and receipts are shown at current prices and are expected to rise by 3% per year from current values. The theme park would cost a total of Rs400 million and it will take one year before the construction is fully complete. The park would become operational at the start of year 2. Half of the Rs400 million would be payable immediately, and thereafter half in one year's time. In addition working capital of Rs50 million will be required from the end of year one.

The realisable value of fixed assets is expected to be Rs357.14 million after four years of operation. Maintenance costs (excluding labour) are expected to be Rs15 million in the first year of operation, increasing by Rs4 million per year thereafter. Annual insurance costs are Rs2 million, and the company would apportion Rs2.5 million per year to the theme park from existing overheads. The theme park would require 1,500 staff costing a total of Rs40 million per annum (at current prices).

Sunny will use the existing advertising campaigns for its hotels to also advertise thetheme park. This will save approximately Rs2 million per year in advertisingexpenses.

Required:

Prepare supporting calculations to decide whether or not Sunny should undertake the investment in the theme park given a risk adjusted discount rate of 11.80% per annum.

Reference no: EM13208110

Questions Cloud

State electromagnetic spectrum wil the electron transitions : In what region of the electromagnetic spectrum wil the electron transitions from a higher energy state to n1=3 appear for the hydrogen spectrum?
Which search engine do you believe provided : Which search engine do you believe provided you the best results? Support your position by explaining why you believe the particular search engine to be better based upon your experience.
Explain over what wavelength range is the emission of light : Over what (approximate) wavelength range is the emission of light from excited sodium atoms most sensitive to the eye
Write a program that reads from the external file : write a program that reads from the external file input.txt, counts the letters in every word , replaces the word by that number and then writes the numbers to an external file output.txt
Decide whether or not sunny should undertake the investment : Prepare supporting calculations to decide whether or not Sunny should undertake the investment in the theme park given a risk adjusted discount rate of 11.80% per annum.
Create a class that simulates an alarm clock : create a class that simulates an alarm clock. In this class you should *store time in hours, minutes, and seconds. Note if time is am or pm. (hint: you should have separate private members for the alarm and the clock.
Find who loses and who benefits from the policy : Suppose that the stock market crashes and, as a result, people in Gotham City are poorer. This reduces the quantity of taxi rides demanded by 6 million rides per year at any given price. What effect will the mayor's new policy have now
Which of the following is true : Which of the following is true? a. A program can call, at most, one method. b. A program can contain a method that calls another method. c. A method can contain one or more other methods. d. All of these are true
Explain how many moles of hydrogen are present sample : How many moles of hydrogen are present in a 26.3 mL sample at 19 degrees celsius and 744 torr?

Reviews

Write a Review

Corporate Finance Questions & Answers

  Liability or part of stockholders equity

Indicate whether each of these items is an asset (A), a liability (L), or part of stockholders" equity (SE). (a) Accounts receivable. (b) Salaries and wages payable.

  Differences between project valuation and firm valuation

What are the similarities and differences between project valuation and firm valuation. For example, using DCF model, by forecasting free cash flow, weighted average cost of capital(WACC), but which applies only to project and which are only to fi..

  Different growth rates distort a comparative ratio analysis

Different growth rates distort a comparative ratio analysis? Give some examples and how might these problems be alleviated?

  Define the concept of management

Define the concept of management. Describe the major functions of the management process and why they are important. Describe the roles of the manager as outlined by Mintzberg.

  Calculate the reward to variability ratio

Asset A has an expected return of 20 percent and a standard deviation of 25 percent. The risk free rate is 10 percent. Calculate the reward-to-variability ratio?

  Compute cost of common equity using the capm model

What is the after-tax cost of debt if the tax rate is 34% and explain what other methods you could have used to find the cost of debt for AirJet Best Parts Inc.

  What change would you expect in the required return

What change would you expect in the required return for each of the stocks and what change would you expect in the required return for each of the stocks?

  Determination of rate of return

Past year Mike bought 100 shares of Dallas Company common stock for dollar 53 per share. During the year he earned dividends of $1.45 per share.

  Calculate cost of retained earnings and new common stock

The management of a conservative company has adopted a policy of never letting debt exceed 30% of total financing. The company will earn $10,000,000 but distribute 40% in dividends,

  What is the firms income tax liability

What is the firm's income tax liability and its after-tax income and what are the firm's marginal and average tax rates on taxable income?

  Calculate the pmt for amortizing loan

A homeowner borrows $1,000,000 on a mortgage loan, and the loan is to be repaid in thirty equal payments at end of each of the next thirty years.

  Compute current stock price

Star Wars Group just paid a dividend of $1.50 per share on its stock. The dividends are expected to grow at a constant rate of 10 percent per year, indefinitely.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd