TCA 420 University of Nevada Las Vegas Hospitality Management Exam

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TCA 420

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TCA 420 Fall 2020 Exam #3 Chapters 8 -10 This exam is to be completed on an individual basis. Make sure to answer the questions using a separate Word file. Please provide your name and section number. Send the file to me at my regular email: Michael.dalbor@unlv.edu. 1. (10 points). Chapter 8 of the textbook discusses KDBT and KD. What is the difference between them? Please do not just copy from the textbook. 2. (10 points). You are given the following information: WD WE KDBT Tax Rate KE KD 40% 60% 10% 40% 14% ??? Calculate the weighted average cost of capital (WACC). 3. (10 points). We purchase a piece of new equipment with the following associated costs: Purchase Price Installation Costs Extended Warranty Sales Tax New working capital needed Salvage value of old equipment $50,000 $10,000 $5,000 $4,000 $2,000 $3,000 Calculate the net investment value (NINV) of the new equipment. Show your calculations. 4. (10 points). The forecast for a new project is as follows: Incremental Revenues Incremental Expenses Interest Expense Depreciation Expense Tax Rate $100,000 $60,000 $10,000 $5,000 20% Calculate the After-Tax Operating Cash Flow (OCFt). Show your calculations. 1 5. (10 points). You are conducting a capital budgeting analysis for a new hotel. 3 years ago your company paid $4,000,000 for the land for the new hotel. The hotel has not been built yet. If you decide to sell the land today you could get $5,000,000 for it. State how much the land is worth in a capital budgeting analysis and why. 6. (10 points). A capital budgeting project has the following cash flows: Year 0 1 2 3 4 Cash Flow ($100,000) $45,000 $64,000 $72,000 $83,000 a. Using a 8% required rate of return, calculate net present value (NPV) to the nearest $1. Write down your calculator steps (do not use Excel for this problem). b. Calculate the Internal Rate of Return to 2 decimal places (do not use Excel for this problem). 7. (10 points). A capital budgeting project has the following cash flows: Year 0 1 2 3 4 Cash Flow ($50,000) $30,000 $60,000 ($12,000) $70,000 Using a 10% rate of return, calculate the Modified Internal Rate of Return (MIRR) to 2 decimal places. Show your calculations (do not use Excel for this problem). 8. (10 points). Explain three (3) weaknesses of using the Payback Method to evaluate a capital budgeting project. 2 9. (10 points). Two capital budgeting projects have the following cash flows: Year 0 1 2 3 4 Project X Cash Flows ($75,000) $30,000 $30,000 $30,000 $30,000 Project Y Cash Flows ($50,000) $25,000 $25,000 $25,000 $25,000 a. Using a 12% rate of return, calculate the Profitability Index (PI) for Project X to 2 decimal places. Show your calculator steps. b. Using a 12% rate of return, calculate the Profitability Index (PI) for Project Y to 2 decimal places. Show your calculator steps. 10. (10 points). Explain how the use of Net Present Value (NPV) in making capital budgeting decision is consistent with maximizing the wealth of the owners. Please do not just copy from the textbook. 3
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1

Exam #3

Name
Institutional Affiliation

2
TCA 420
Fall 2020
Exam #3
Chapters 8 -10
This exam is to be completed on an individual basis. Make sure to answer the questions
using a separate Word file. Please provide your name and section number.Send the
file to me at my regular email: Michael.dalbor@unlv.edu.

1. (10 points). Chapter 8 of the textbook discusses KDBT and KD. What is the difference
between them? Please do not just copy from the textbook.
When you borrow some money from any lender then the interest you’re paying back is
your cost of debt (KD). It could be any short-term loan, long term loan, cash credit,
overdraft or bonds. While any bond or other fixed income securities pay interest starting
from issuing of the securities till its maturities. The interest could be simple cumulative,
fixed or reliable. Yield to maturity is the total interest paid by the security from inception
till maturity divided by the number of years.
Cost of debt (KD) is the required rate of return on debt capital of a company. Yield to
maturity equals to the internal rate of return of debt.

2. (10 points). You are given the following information:

WD

40%

WE

60%

KDBT

10%

Tax Rate

40%

KE

14%

KD

???

Calculate the weighted average cost of capital (WACC).
Weighted average cost of capital = E/V × Re + D/V × Rd × (1-Tc)

3
60/100/10 × 14/100 × 40/100/10 × (1- 40/100)
6/100 × 14/100 × 4/100 × (1-0.4)
= 2.016 × 10^-4

3. (10 points). We purchase a piece of new equipment with the following associated
costs:

Purchase Price

$50,000

Installation Costs

$10,000

Extended Warranty

$5,000

Sales Tax

$4,000

New working capital needed

$2,000

Salvage value of old equipment

$3,000

Calculate the net investment value (NINV) of the new equipment.
yourcalculations.
Capital expenditure – Depreciation expenses
Net investment value = gross capital expenditure – depreciation expenses
= $ 50,000 – purchase price
$ 10,000 – installation cost
$ 4000 – sales tax
$ 2000 – new working capital needed
$ 5000 – extended warranty
= [(50,000 + 10000 + 4000 + 2000 + 50...


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