Assignment 1 (MADM Management Accounting) The construction of budgets & capital investment appraisal for a new hotel John has ?2,000,000 available to invest in a new hotel which he will open on 1 April 2016. On the first year, he proposes to spend the ?2,000,000 as follows: ? Leasehold Property (50 year lease) 1,600,000 Furniture and fittings (10 year life) 150,000 Kitchen equipment (10 year life) 50,000 Laundry equipment (5 year life) 25,000 Gym equipment (10 year life) 15,000 China, glass and cutlery 10,000 Bed linen and towels 10,000 Initial food and drink inventory 15,000 Cash remaining 125,000 2,000,000 John has made the following forecasts: The hotel will have 30 rooms and will be open for dinner seven days a week. The hotel will operate April to September and the average monthly occupancy levels are expected to be the following: April 30% May 40% June 70% July 90% August 90% September 70% Average spend is expected to be ?150 per room per night and 30% of sales are expected to be for cash and 70% are expected to be on credit received the following month. Monthly purchases of food, drink and laundry materials are expected to be 20% of sales. 80% of these purchases will be on credit paid in the next month after the purchase is made and the remaining part will be in cash. Labour cost is budgeted at 20% of sales paid in the month they are incurred. Overhead costs are budgeted at 25% of sales paid with a time lag of one month. Depreciation uses the straight line method. Inventory levels are expected to be ?10,000 on average. Assume no taxation is imposed. Required: Prepare a report for the board of directors that addresses the following tasks: Task 1 (15 marks) Write a 400-word introduction on the need for budgeting, the process for preparing budgets and their limitations. Task 2 (45 marks) Prepare the following documents for the first six (6) months of the hotel s operation: A cash budget (15 marks) A budgeted income statement (15 marks) A budgeted statement of financial position (15 marks) Task 3 (35 marks) Calculate the payback period using both the payback method (8 marks) and the discounted payback method (12 marks), as well as the NPV of the project (15 marks), assuming the following: A cost of capital of 7%, using four decimal points on the discount factor; Net cash flow will grow 3% on a year basis compared to previous year; and John hopes to sell the hotel at the end (October 1) of the tenth year for ?3,200,000. Overall Presentation (5 marks) The report should have: A word count of 1,800-2,000 words; A table of contents; Good spelling and grammar; Appendices that support your arguments and calculations; and A bibliography (please apply the Harvard system for citations and bibliography). Apart from the report, you should also submit the spreadsheet (in Excel) where the budgets will have been created and the capital investment appraisal techniques will have been performed!