Financial Decision Making

1. A banquet operation, that can only do one banquet per day, has the following information: Sales Price $12.50, variable cost $5.85, daily fixed cost of $200.
What is the profit or loss if we accept a potential booking for 50 guests for a price of $9.00?

2. What is the profit or loss if we refuse the booking?

3. The General Manager asks if this business facility should close for the off-season. . Assume next year will be the same as last year. The business was open 12 months last year. The off-season is 3 consecutive months, with sales of $30,000. Last year’s information was: sales $600,000, Variable costs 360,000, and fixed costs of 192,000. What was last year’s profit or loss?

4. If they close for the off season, what would its annual profit or loss be?

5. You must decide whether to take a fixed lease or variable lease for a business location. The fixed lease is $42,600 annually. The variable lease is based on 6% of sales. You expect annual sales to be a minimum of $800,000. Which type of lease should you select?

6. Assuming you had picked a variable lease, how much would the payment have been on sales of $925,000?

7. A capital budgeting analysis is required from the following information:

Old New
Equipment Equipment
Purchase cost & installation 60,000
Salvage at end of useful life 0 0
Useful life 10 years
Depreciation method Straight-line
Annual operating expenses:
Payroll & related expense $45,000 $28,000
Power expense 7,500 5,700
Supplies expense 2,500 2,000
Repairs expense 2,000 …