BIZ201 Accounting for Decision Making

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a) Explain and evaluate the role and importance of financial information in business decision making

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b) Apply relevant accounting concepts to simple business scenarios d) Apply basic costing and budgeting techniques to business decision making e) Apply capital budgeting techniques to capital investment scenarios

 

Crystal Hotel Pty Ltd introduced in Part A of the Case Study has a quite flat organisational structure as per the chart below. The General Manager oversees each departmental manager directly

 

TASK 1 As part of the Wellness Centre Project, the plan is to build a small gym on the rooftop of the hotel. You have been appointed to help the Sales and Marketing manager to make decision whether to rent or buy specific equipment items. The required items are included in Appendix 1 together with costing information. The budget for the required equipment is $45,550 for the life of the equipment. The useful life of the equipment is predicted to be 3 years after which it will need to be replaced. At the end of its useful life, it is expected to be sold for the residual value of 6% of its original cost. From the renting options, choose the one that is the most beneficial for the business. The rent is expected to rise by 4% each year. The rent is paid at the beginning of each period. Servicing of the equipment is included in the rent. Assume that servicing its own equipment will cost the hotel additional $600 every year over the period of its useful life. Assume that servicing is done and paid at the end of each year. REQUIRED The manager would like to know whether it would be better for the Hotel to buy the required equipment or to rent it. Explore both options and make a recommendation. Take into account the time value of money at the discount rate of 8%. Include advantages and disadvantages of each option and justify your choice.

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