MIHM 7123 FINANCE PM PROJECT

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TOTAL POINTS

Total Points Exercise
15 EXERCISE 1: Developing the statement of cash flows
15 EXERCISE 2: Indirect cost allocation
10 EXERCISE 3: Cost - Volume - Profit Analysis for a Hotel
15 EXERCISE 4: Mediolanum Hotel Ratio Analysis:
10 EXERCISE 5: Operations Budgeting Variance Analysis
10 EXERCISE 6: STRAIGHT-LINE DEPRECIATION
25 EXERCISE 7: Multiple choice questions
100

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Ex. 1 SCF

EXERCISE 1: Developing the statement of cash flows
2019 Income Statement (in $000) Balance Sheets ($000) December 31 Statement of Cash Flows 2019 ($000)
Sales Revenue $ 1,870 Assets 2019 2018 Cash Flow from Operating Activities Inflows and Outflows of Cash
Less: Cost of goods sold 1,100 Cash and marketable securities $ 1,163 $ 550 Net Profit After Taxes
Gross Profits $ 770 Accounts receivable 440 550 Depreciation Inflows (Sources) Outflows (uses)
Inventories 660 990 Accounts Receivable Decreases in any asset Increase in any asset
Less: Operating Expenses Total Current Assets $ 2,263 $ 2,090 Inventories Increases in any liability Decrease in any liability
Selling, general, and administrative expenses $ 253 Accounts Payable Net profits after taxes Net loss after taxes
Depreciation Expense 110 Land and buildings $ 1,320 $ 1,155 Accruals Depreciation and other non cash charges Dividends paid
Total Operating Expenses $ 363 Machinery and equipment, furniture, vehicles 1,430 1,265 Cash provided by operating activities Sale of stock Repurchase or retirement of stock
Total gross fixed assets (at cost) $ 2,750 $ 2,420 Points:
Earnings before interests and taxes (EBIT) $ 407 Less: Accumulated Depreciation 1,430 1,320 Cash Flow from Investing Activities Cash provided by operating activities 5
Net Fixed Assets $ 1,320 $ 1,100 Gross fixed assets Cash provided by investment activities 5
Less: Interest Expense 77 Total Assets $ 3,583 $ 3,190 Changes in equity investments in other firms Cash Flow from Financing Activities 5
Net profits before taxes $ 330 Cash provided by investment activities Total Points: 15
Less: Taxes (rate = 21%) 69 Liabilities and stockholders' equity
Net profits after taxes $ 261 Accounts Payable $ 770 $ 550 Cash Flow from Financing Activities
Less: Preferred stock dividends 11 Notes Payable 660 770 notes payable
Earnings Available for common stockholders $ 250 Accruals 110 220 long-term debt
Total current liabilities $ 1,540 $ 1,540 Changes in stockholders' equity
Dividends paid to common stockholders $ 77.00 Long-term debt 660 440 Dividends (common and preferred)
Total liabilities $ 2,200 $ 1,980 Cash provided by financing activities
Net increase in cash and marketable securities
Preferred stock $ 110 $ 110
Common stock: 132 132
Paid-in Capital in excess of par on common stock 418 418
Retained earnings 723 550
Total stockholders' equity $ 1,383 $ 1,210
Total liabilities and stockholders equity $ 3,583 $ 3,190

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Ex. 2 Cost Allocation

EXERCISE 2: Indirect cost allocation
High Rollers' Income Statement based on allocated indirect costs for the 3 months ending 31st December 20X1:
Requested:
1. Fill in the "X" with the proper Indirect cost allocation.
2. Fill in the "X" of the tax assuming a 30% of Income tax rate.
Casino Rooms F&B Total
Revenue $ 700,000 $ 200,000 $ 100,000 $ 1,000,000
Cost of Sales $ 20,000 $ 20,000
Labour $ 210,000 $ 41,000 $ 25,000 $ 276,000
Other direct costs $ 65,000 $ 8,000 $ 7,000 $ 80,000
Profit before indirect costs $ 425,000 $ 151,000 $ 48,000 $ 624,000
Indirect costs: Points Awarded
15
Advertising ? ? ? $ - 0 2.50 6
2.5
Senior management salaries and ? ? ? $ - 0 2.50
administrative support
General building maintenance ? ? ? $ - 0 2.50
Training and personnel ? ? ? $ - 0 2.50
Transportation ? ? ? $ - 0 2.50
Total indirect costs ? ? ? $ - 0
Income before tax ? ? ? $ - 0
Tax ? 2.50
Net Income (Profit) ERROR:#VALUE! 15 Total points

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Ex. 3 CVP Analysis

EXERCISE 3:
Cost - Volume - Profit Analysis for a Hotel
Data:
1. Calculate availabe rooms Month: April 30 days
2. Calculate occupancy rate Number of rooms: 100
3. Calculate the Average Selling price (Average Room Rate - ARR) Rooms sold during month: 1,800
4. Calculate the Variable cost per unit (Vcu) Total revenue: 198,000 €
5. Calculate the Contribution Margin per Unit (CMu) FC (Fixed Costs): 45,000 €
6 Calculate the Break Even Point in Units (Rooms) TVC (Total Variable Costs): 54,000 €
7. Calculate the Margin of Safety in Units
8. Calculate the Operating Leverage
9. Calculate the Profit
Based on the previous calculations respond:
10. How many rooms needs to be sold to achieve 120,000 € of Profit?
11. How many rooms we need to sell to increase our profit in 15,000 €?
12. In how much we need to increase our Occupancy rate in order to increase our profits in an 10%.
Answers: Answers Box: Points Awarded
1. Available Rooms ? 0.5
2. Occupancy Rate (rooms sold/available rooms) ? 0.5
3. Asp (ARR) Average Selling Price (Total Revenue/Rooms sold): ? 0.5
4. Vcu Variable Cost per unit (Total Variable Cost/Rooms sold): ? 0.5
5. Cmu Contribution Margin per unit (Average Selling Price - Variable cost per unit): ? 0.5
6 BEP Breakeven Point (Fixed Costs / Contribution Margin): ? 0.5
7. MS Margin of Safety (Rooms sold - BEP (units)): ? 0.5
8. OL Operating Leverage (Rooms sold / margin of safety) ? 0.5
9. Profit (Total Revenue - FC - VC) ? 0.5
10. How many rooms needs to be sold to achieve 120,000 € of Profit?
? 1.25
11. How many rooms we need to sell to increase our profit in 15,000 €?
? 1.25
12. In how much we need to increase our Occupancy rate in order to increase our profits in an 10%.
? 1.5
? 1.5
10

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Ex.4 SOLUTION

Mediolanum Hotel:
1. Mediolanum Hotel presents the following financial information at the close of business on December 31:
a) Based on the Account balances below calculate the following totals:
Account Account Balance Account Category Current Assets, Long-Term Assets, Total Assets. Total current Liabilities, Total Long-Term Liabilities, Total Liabilities. Total Owners' Equity. Total Liabilities + Owners' Equity.
Salaries 41,000 € b) Calculate the below Income Statement profitability measures 1 - 4.
Inventory 60,000 € Current income tax rate is 35%
External Maintenance expense 16,750 € Income Statement: Points Awarded
Building 291,000 € Revenue 187,000
Accounts Receivable 25,000 € Cost of goods sold 43,500
Capital 215,000 € 1. Gross Profit: 143,500 1.5
Short term investment 3,500 € Operating expenses 67,250 1.5
Interest Payable 25,000 € Extraordinary income & (losses) 4,000 1.5
Sales 187,000 € 2. Profit before interests & taxes: 80,250
Notes payable Short Term 31,000 € Non-operating expenses 15,000 1.5
9 months Global Bank Loan 17,000 € 3. Profit before income tax 65,250
Mortgage La Caixa Bank 54,000 € Income Tax (35%) 22,838 1.5
Sales promotional expenses 9,500 € 4. Net Profit 42,413 1.5
Bank 4,500 € 9
COGS 43,500 €
Interest expense 15,000 € c) Based on the previous data, calculate the Liquidity, Solvency & Profitability ratios:
Logistics bus 36,000 € 2
Debtor long-term 36,500 € Total Current Assets Total Current Liabilities Total Equity
Cash 18,000 € Total Long-term Assets Total Long Term Liabilities Total Liabilities + Equities
Creditor long-term 64,000 € Total Assets Total Liabilities
Salary Payable 13,000 €
2 years Bank of America loan 68,500 € Liquidity: Profitability:
Sold VAN below Net Book Value (Loss) 1,000 € Quick ratio: 0.59 Not Sustainable ROA: 8.7% Sustainable
Prepaid expenses 13,000 € Current ratio: 1.44 Sustainable ROE: 19.7% Sustainable
Lobby space rental 5,000 € Solvency: Profit Margin: 22.7% Sustainable
Solvency ratio: 1.8 Sustainable
Points Awarded
Total Current Assets 1.53
Total Long-term Assets 1.53
Total Current Liabilities 1.53
Total Long Term Liabilities 1.53
Total Liabilities + Equities 1.53
Quick ratio: 1.53 Ratio + Ratio Interpretation
Current ratio: 1.53 Ratio + Ratio Interpretation
Solvency ratio: 1.53 Ratio + Ratio Interpretation
ROA: 1.53 Ratio + Ratio Interpretation
ROE: 1.53 Ratio + Ratio Interpretation
Profit Margin: 1.53 Ratio + Ratio Interpretation
17

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Ex. 4 Ratio Analysis

EXERCISE 4:
Mediolanum Hotel Ratio Analysis:
1. Mediolanum Hotel presents the following financial information at the close of business on December 31:
a) Based on the Account balances below calculate the following totals:
Current Assets, Long-Term Assets, Total Assets. Total current Liabilities, Total Long-Term Liabilities, Total Liabilities. Total Owners' Equity. Total Liabilities + Owners' Equity.
Account Account Balance Account Category c) Calculate the Liquidity, Solvency & Profitability ratios and interpret the results.
Salaries 41,000 € Expense
Inventory 60,000 € Current Asset Total Current Assets ? Total Current Liabilities ? Total Equity ?
External Maintenance expense 16,750 € Expense Total Long-term Assets ? Total Long Term Liabilities ? Total Liabilities + Equities ?
Building 291,000 € Long-Term Asset Total Assets ? Total Liabilities ?
Accounts Receivable 25,000 € Current Asset
Capital 215,000 € Equity Liquidity: Points Awarded
Short term investment 3,500 € Current Asset Quick ratio: ? Sustainable Balance sheet 5
Interest Payable 25,000 € Current Liability Current ratio: ? Not Sustainable Income Statement 5
Sales 187,000 € Revenue Solvency: Ratios & Analysis 5
Notes payable Short Term 31,000 € Current Liability Solvency ratio: ? Total Points 15
9 months Global Bank Loan 17,000 € Current Liability Profitability:
Mortgage La Caixa Bank 54,000 € Long-Term Liability ROA: ?
Sales promotional expenses 9,500 € Expense ROE: ?
Bank 4,500 € Current Asset Profit Margin: ?
COGS 43,500 € Cost of goods sold
Interest expense 15,000 € Expense
Logistics bus 36,000 € Long-Term Asset
Debtor long-term 36,500 € Long-Term Asset
Cash 18,000 € Current Asset
Creditor long-term 64,000 € Long-Term Liability
Salary Payable 13,000 € Current Liability
2 years Bank of America loan 68,500 € Long-Term Liability
Sold VAN below Net Book Value (Loss) 1,000 € Extraordinary Loss
Prepaid expenses 13,000 € Current Asset
Lobby space rental 5,000 € Extraordinary Revenue
b) Calculate the below Income Statement profitability measures 1 - 4.
Current income tax rate is 35%
Income Statement:
Revenue ?
Cost of goods sold ?
1. Gross Profit: ?
Operating expenses ?
Extraordinary income & (losses) ?
2. Profit before interests & taxes: ?
Non-operating expenses ?
3. Profit before income tax ?
Income Tax (35%) ?
4. Net Profit ?

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Ex. 5 Budgeting Variance

EXERCISE 5: Operations Budgeting Variance Analysis
The accountant at Ritz Carlton Hotel located in Barcelona analyzes only significant budget variances on a monthly basis.
The criteria used to determine if the budget variances are significant are as follows:
Revenues: -€ 1,000.00 and 3 %
Fixed expenses: + 100 only
Variable expenses: + 200 and 6 percent
Selected revenues and expenses for May 2024 to be analyzed are in the below table:
Required:
1. Complete the Euro and % variance columns.
2. Identify each variance as either Significant (S) or Not significatn (NS).
3. Identify if variance is favorable or unfavorable for the Hotel.
Points Student
Item Type of Cost Budget Actual Euro Variance % Variance S/NS Favorable/ Unfavorable
Room sales € 75,000.00 € 72,500.00 ? ? ? ? 1
Food sales € 35,000.00 € 33,400.00 ? ? ? ? 1
Cost of food sold Variable € 11,250.00 € 13,211.00 ? ? ? ? 1
Labor Fixed € 5,200.00 € 5,200.00 ? ? ? ? 1
Labor Variable € 3,500.00 € 3,800.00 ? ? ? ? 1
Supplies Variable € 3,115.00 € 3,000.00 ? ? ? ? 1
Franchise fees Variable € 2,100.00 € 2,150.00 ? ? ? ? 1
Depreciation Fixed € 1,000.00 € 1,150.00 ? ? ? ? 1
Insurance Fixed € 500.00 € 500.00 ? ? ? ? 1
Property taxes Fixed € 255.00 € 375.00 ? ? ? ? 1
10 0

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Ex. 6 Depreciation

EXERCISE 6: STRAIGHT-LINE DEPRECIATION
A manufacturing company acquired specialized machinery on October 1st, 2025, for €120,000. The machinery has an estimated useful life of 10 years and an estimated salvage value of €12,000.
Questions:
1. Calculate the annual depreciation expense for the manufacturing machinery. 3.33 Points
2. What will be the depreciation expense recognized for the year ending December 31st, 2025? (Remember it was purchased in the fourth quarter). 3.33 Points
3. What will be the net book value of the machinery at the end of the fifth full year of use (December 31st, 2030)? 3.33 Points
10 Points
1. Calculate the annual depreciation expense for the manufacturing machinery.
2. What will be the depreciation expense recognized for the year ending December 31st, 2025? (Remember it was purchased in the fourth quarter).
3. What will be the net book value of the machinery at the end of the fifth full year of use (December 31st, 2030)?

Ex. 7 MCQ's

EXERCISE 7: Multiple choice questions
1. There are two types of depreciation, the depreciation expense, and the accumulated depreciation. Choose the correct answer:
a. The first type of depreciation is an expense and the second is considered to be a contra asset account.
b. The first type of depreciation is an expense and the second is considered to be fixed asset.
c. They are both calculated at the end of the month only on current and non-current assets.
d. They are both calculated at the end of the month on the liabilities of the company.
e. No answer.
2. In January, the total fixed costs at the 250-room Vacation Hotel were $40,000. With 5,000 rooms sold in January, the average fixed cost per room sold was $8.
The forecast for February projects a 10% increase in occupancy over January. If this increase in sales volume occurs, the total fixed costs for February would be:
a. lower than in January.
b. relatively the same as in January.
c. higher than in January.
d. No answer
e. unrelated to January’s total fixed costs.
3. A sunk cost is:
a. relevant in decision-making situations.
b. No answer
c. a quantifiable future cost.
d. a cost that has already been incurred.
e. a differential cost.
4. In the course of a year, cost items such as rent, insurance, external property maintenance and a general manager’s salary represent what types of cost?
a. No answer
b. Incremental
c. Fixed
d. Semi-variable
e. Opportunity
5. In a profit and loss statement that is prepared using the contribution margin layout:
a. Costs are classified according to function.
b. Fixed costs are distinguished from variable costs.
c. No answer
d. Costs are segregated into controllable and uncontrollable.
e. Direct costs are distinguished from overheads.
6. Break-even is the level of sales where:
a. No answer
b. Total revenue equals all of an organization’s fixed costs.
c. Total revenue equals all of an organization’s variable costs.
d. Total revenue is the same as total costs.
e. Total revenue equals all of an organization’s direct and fixed costs.
7. Percentage contribution margin ratio is:
a. Sales minus variable costs
b. Contribution as a percentage of sales
c. Variable costs as a percentage of sales.
d. Gross profit as a percentage of sales
e. No answer
8. What is the formula for calculating operating leverage (Degree of Operating Leverage)?
a. No Answer.
b. DOL = Contribution margin / EBIT (Earnings before interests and taxes)
c. DOL = PBIT (profit before interests and taxes) / Interest expense
d. DOL = PBIT (profit before interests and taxes) / Sales
e. DOL = Sales / PBIT (profit before interests and taxes)
9. A company with a high degree of operating leverage is more sensitive to changes in:
a. No answer.
b. Fixed costs
c. Variable costs
d. Interest expense
e. Sales
10. Which of the following factors would increase a company's degree of operating leverage?:
a. A decrease in variable costs
b. No Answer.
c. An increase in fixed costs
d. An increase in sales
e. A decrease in the tax rate
11. A firm's degree of operating leverage (DOL) depends primarily upon its: :
a. Fixed costs and variable costs.
b. Total operating costs. .
c. Variable operating costs. .
d. Fixed operating costs.
e. No answer.
12. Current Ratio is expressed as:
a. Total Assets / Current Liabilities.
b. No answer.
c. Current Liabilities / Current Assets.
d. Current Assets / Current Liabilities.
e. (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities.
13. Which of the following types of costs is generally allocated among profit centers?
a. No answer.
b. incremental costs.
c. standard costs
d. overhead costs
e. sunk costs
14. Which of the following are true in cost-volume profit analysis? :
a. The selling price per unit is usually treated as constant.
b. Total variable costs vary directly in proportion with sales volume.
c. Fixed costs are constant.
d. No answer
e. All of the above.
15. Cashflow from investing activities include:
a. Cash flows from the issuance and retirement of debt..
b. No Answer.
c. Cash flow from short-term and long-term borrowings..
d. Cash flows from the acquisition and disposal of all noncurrent assets.
e. Cash flow from short-term and long-term equity investments.
16. The cashflow from operating activities shows:
a. Cash flows from operating debt.
b. Cash flows directly related to the production and sale of the business.
c. Cash flow from short-term and long-term borrowings needed to run the business.
d. Cash flow from short-term and long-term equity investments
e. No answer
17. Liquidity ratios:
a. Are calculated to analyze the profitability of the business..
b. Are calculated to analyze the business ability to meet its long-term obligations.
c. Assist in the analysis of business operations. .
d. Reveal the ability of a business to meet its short-term obligations. .
e. No answer.
18. The Return on Equity ratio is calculated as:
a. Net Income / Owners' Equity (capital invested)
b. Sales / Owners' Equity (capital invested)
c. Total Assets / Owners' equity (capital invested)
d. Current Assets / Owners' Equity (capital invested)
e. No answer.
19. In which category should be classified the account “Retained earnings”?: 
a. Current Asset Account
b. Revenue account
c. Owners’ Equity account
d. Long-term asset
e. No answer.
20. The Profit Margin ratio is calculated as:: 
a. Profit before income tax / Sales
b. Net Profit / Sales
c. Net Profit / Owners' equity (capital invested)
d. Sales / Profit before interests and taxes
e. No answer.
21. Which of the following is not a widely-used cost classification scheme used by accountants:
a. Direct vs indirect costs.
b. Variable vs fixed costs.
c. Outlay vs opportunity costs.
d. Escalating costs vs reducing costs.
e. No answer
22. Which of the following is not a fixed cost?
a. property hotel taxes
b. manager salary (set at $25,000 for the period)
c. depreciation of the hotel bus
d. bathroom amenities
e. No answer
23. A direct cost is:
a. A cost that can be observed directly and therefore measured accurately.
b. A cost resulting from the specific directions of a senior manager.
c. A cost that directly relates to sales.
d. A cost that can be traced to a particular cost object.
e. No answer
24. Which of the below Expenses are NOT directly associated with any department?
a. Microwave, guestroom; Mattress cover; Hair dryers; Key cards.
b. Hair shampoo (health club/spa); Payroll, spa hourly; Spa music.
c. Baked goods, Bar fruit and garnish, Bar supplies—consumable and Bottle openers.
d. Depreciation, Interests, Insurance, Rent and Property Taxes.
e. No answer
25. Financial ratio analysis is used:
a. By shareholders to gauge profitability and liquidity.
b. By managers to support decision making.
c. By creditors to appraise short term financial stability of a company.
d. All of the above.
e. No answer.
Per question Total Questions Total Points
1 25 25