The  M Enterprise consists of four (4) hotels . The corporation’s required annual return for each hotel is 12% of each hotel’s average total assets. The net income and average total assets for each hotel are as follows:

Each hotel has the opportunity to expand. The cost per expansion per hotel is as follows:

Gibson Hotel – $5MM

Brock Hotel –   $6MM

Smith Hotel-   $5MM

Carey Hotel-   $4MM

The minimum expected after tax profit per hotel is :

Gibson Hotel – $650K

Brock Hotel –   $800K

Smith Hotel-    $700K

Carey Hotel-   $ 350K


  1. Determine the ROA for each hotel before the expansion consideration
  2. If the expansion is based on maintaining or improving a hotel’s ROA , which hotels would be best suited? Why? Explain by ranking the hotels in terms of ROA
  3. Calculate the residual income for  each hotel before and after the proposed expansion.
  4. Provide a critical analysis of the rationale to expand or not to expand in your answer and show evidence of some research.

Question 3

Assume 1- that the total assets have not changed over the period

                 2-that the average capital stock outstanding for each year of the equals 1,000,000 shares


  1. Determine the change in the market price of the capital stock over the years
  2. What are the total assets at the end of each year
  3. Calculate the ROE. Assume that the TOE did not change during the year.
  4. Be detailed, and thorough, state your assumptions clearly, and be critical in your answer. Show evidence of research

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