Professional Documents
Culture Documents
Feasibility study is an analysis of the attractiveness of the location and the financial situation of
a property development. It is carried out to assess whether a business can be opened at a new
location or to be expanded in the existing location. A feasibility study may reduce the risk of a
particular investment but not eliminate the risk.
Solution:
a. Determination of rooms demand:
Rooms Occupancy = Rooms
Motel Available × % Demand
A 74 × 82% = 61
B 45 × 73% = 33
C 58 × 85% = 49
D 48 × 70% = 34
E 52 × 75% = 39
Totals 277 216
d. Assume a 70% occupancy and calculate the rooms that could be supplied for the next 4
years:
Comment:
A project to develop a hotel in this area is feasible because there are rooms required in year 4
of 126 rooms. If the construction starts now, a 126-room hotel can be operated in year 4 to cater
the demand in this area.
e. Assume a 78% occupancy and Hotel E is due to be demolished in year 2 calculate the
rooms that could be supplied for the next 4 years:
Comment:
As compared to answer in (d), a project to develop a hotel in this area is still feasible because
there are rooms required in year 4 of 137 rooms. Furthermore, there is one hotel will cease
operation at the end of year 2. If the construction starts now, a 137-room hotel can be operated
in year 4 to cater the demand in this area.
PAST SEMESTER QUESTIONS
QUESTION 1
Demand for rooms in the area where the hotels are located I broken down into the following
sources and growth rates:
QUESTION 2
Demand for rooms in the area where the hotels are located I broken down into the following
sources and growth rates:
QUESTION 3
Demand for rooms in the area where the hotels are located I broken down into the following
sources and growth rates:
Demand for rooms in the area where the hotels are located I broken down into the following
sources and growth rates:
QUESTION 5
Demand for rooms in the area is broken down into the following sources and growth rates:
QUESTION 6
Demand for rooms in the area is broken down into the following sources and growth rates:
QUESTION 7
Demand for rooms in the area is broken down into the following sources and growth rates :-
Source Percentage Growth rate
Business traveler 20% 6%
Vacation traveler 70% 11%
Other travelers 10% 2%
a) Calculate the current average occupancy of the five hotels,
b) Calculate the composite rate of growth in demand,
c) Apply the composite growth rate to the demand figures to obtain projected demand for
each of the next four (4) years,
d) Assume the average room occupancy that considered profitable is 75%. Calculate the
future supply of rooms to support this occupancy.
QUESTION 8
Final Exam April 2008
Six competitive hotels have the following number of rooms and current occupancy percentage
Demand for rooms in the area where the hotels are located I broken down into the following
sources and growth rates:
QUESTION 9
Demand for rooms in the area is broken down into the following sources and growth rates :
QUESTION 10
Demand for rooms in the area is broken down into the following sources and growth rates:
In hotel, usually the amount needed for long-term financing is quite large. The organization must
decide what kind of financing they want to take up. It is either:
a. Debt Financing – Loan or bond
b. Equity Financing – issuing shares
Sometimes, the company uses the combination of debt financing and equity financing. To ease
understanding, the following calculation can be applied to facilitate the decision:
Note that if the equity financing is 100% then the retained earnings will be carried forward to the
next fiscal year.
For the above technique, we can calculate the value of return. Here from the perspective of
owner, the value of return can be calculated by using Return on Investment Ratio.
ii) Acquire RM200,000 long-term loan with 20% interest, and issue RM 300,000 new
preferred shares with 35% dividend payout ratio.
iii) Acquire RM 250,000 long-term loan with 20% interest, and RM 250,000 new shares with
35% dividend payout ratio.
If the operating income is expected at RM 200,000 and tax deductible at 34%, calculate the net
income for the three alternatives and decide which one of the available methods should be
chosen. From investor’s perspective, which alternative should be chosen?
Therefore the company must decide which alternative is suitable before it proceeds with the
business operation. From the above example, from the owner’s perspective, Alternative 2 is
more attractive, however from the investor’s perspective, Alternative 3 looks more attractive.
EXERCISES
Question 1
Zoela Resort plans to acquire new land for business expansion. The additional fund needed for
the acquisition of new land is RM 2,500,000. The company has two alternatives which are either
by taking a long-term loan with 20% interest or fund raised by issuing preferred stock. The
dividend will be paid at 40% of profit after tax.
The earnings before interest and tax is expected at RM 1,400,000. The business tax is set at
30%. Calculate the net income for both of the long-term financing alternatives and decide which
method of long-term financing the company should choose.
Question 2
Darul Khusus Cruise has an immediate plan to raise fund for purchasing a new ship that will
cost the company RM 20,000,000. To realize the funding, the company has two alternatives
which are:
Alternative 1: Acquiring long-term loan at 5% interest
Alternative 2: Acquiring 20% long-term loan with 9% interest, and issuing
80% common stock with 60% dividend paid based on earning
after tax
The earnings before interest and tax are expected at RM 2,500,000. The business tax is set at
32%.
Question 3
Nubhan would like to open a star rating hotel in his hometown at Senaling. He needs to raise
capital to fund for the project. He has two options which are:
Business Tax is set at 20% per annum. Calculate the net income for both of the financing
method and decide which method should the company choose?
Question 4
Menara Laksamana Tuah plans to develop the land in its present location. It plans to develop a
2-storey building in the proposed new business area. The plan is estimated to cost RM 300,000.
The company has three alternatives which are:
i) Acquire long-term loan with 15% interest.
ii) Acquire RM100,000 long-term loan with 15% interest, and issue RM 200,000 new
preferred shares with 35% dividend payout ratio.
iii) Acquire RM 150,000 long-term loan with 15% interest, and RM 150,000 new shares with
35% dividend payout ratio.
If the operating income is expected at RM 100,000 and tax deductible at 34%, calculate the net
income for the three alternatives and decide which one of the available methods should be
chosen from the company’s perspective
Question 5
Stacy would like to venture in lodging business. She needs to raise capital to fund for the
project. She has the following options which are:
Loan from Bank Equity Financing 50% Loan from Bank
Mualamat Mualamat
50% Equity Financing
Project 2-star Hotel 3-star Hotel Chalet
Initial investment RM 3.3 million RM 5.2 million RM 6.6 million
Sales volume 55,000 units 31,500 units 27,400
Selling price per RM 130 RM 340 RM 420
unit 15% of sales 20% of sales 25% of sales
Variable cost RM 300,000 RM 500,000 700,000
Fixed Cost 15% interest per annum 45% dividend payout 15% interest per annum
Commitment 45% dividend payout
Business Tax is set at 30% per annum. Calculate the net income for all the financing method
and decide which method should the company choose? If you are the potential investors, which
alternative should you choose?
Question 6
Upin Berhad would like to open a new hotel in Sungai Buloh. The company has two alternatives
which are:
40% Loan from Bank and 60% Loan from Bank and
60% Equity financing 40% Equity financing
Business Tax is set at 20% per annum. Calculate the net income for each of the two alternative
and decide which alternative should the company choose?
Question 7
Gula Perak Bhd plans to develop the land in one of its present property location. It plans to
develop a 10-floor building for hotel operation. The plan is estimated to cost RM 10 million.
The company has three alternatives which are :
a. Acquire long-term loan with 12% interest.
b. Acquire RM2 million long-term loan with 12% interest, and issue RM8 million new
shares with 35% dividend payout ratio.
c. Acquire RM5 million long-term loan with 15% interest, and RM5 million new
shares with 35% dividend payout ratio.
If the operating income is expected at RM3 million and tax deductible at 34%, calculate the net
income for the three alternatives and decide which one of the available methods should be
chosen from the company's perspective.
Question 8
Pilah Jaya Resort has an immediate plan to raise fund for its development of new resort in Ulu
Bendul. The additional fund needed is RM 1,000,000. The company has two options which are
either by taking a long-term loan with 15% interest or fund raised by issuing preferred stock. The
dividend will be paid at 50% of profit after tax. The earning before interest and tax is expected at
RM 250,000. The business tax is set at 34%. Calculate the net income for both of the long-term
financing alternatives and decide which method of long-term financing the company should
choose.
Question 9
Menara Laksamana Tuah plans to develop the land in its present location. It plans to develop a
2-storey building in the proposed new business area. The plan is estimated to cost RM 300,000.
The company has three (3) alternatives which are :-
a. Acquire long-term loan with 15% interest,
b. Acquire RM100,000 long-term loan with 15% interest, and issue RM 200,000
new preferred shares with 35% dividend payout ratio,
c. Acquire RM 150,000 long-term loan with 15% interest, and RM 150,000 new
shares with 35% dividend payout ratio.
If the operating income is expected at RM 100,000 and tax deductible at 34%, calculate the net
income for the three alternatives and decide which alternative should be chosen from the
company's perspective.