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Seasonal Prices of a Resort

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A New Hampshire resort offers year-round activities: in winter, skiing and other cold-weather related activities; and in summer, golf, tennis and hiking. The resort's operating costs are essentially the same in winter and summer. Management charges higher nightly rates in the winter, when its average occupancy rate is 75 percent, than in summer, when its occupancy rate is 85 percent. Can this policy be consistent with profit maximization? Explain.

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Yes. It can be consistent with profit maximization because we are talking about two different products that each have their own demand curves. If you look at the attached graph, you will ...

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Solving Problems in Difficulties in Paying Trade Payables

This case involves the evaluation of Kitty (Hawk Food), Inc., a restaurant food wholesaler in eastern North Carolina. The firm is experiencing difficulty paying trade debt and collecting trade receivables on time, which is causing cashflow difficulties and threatening the creditworthiness of the firm. The case should require 1 to 1 1/2 hours of outside preparation by students, and can be effectively discussed in a one-hour class. It is appropriate for managerial finance courses at the undergraduate level, and perhaps at the lower MBA level as a minor exercise.

KHF Corporation is experiencing a threat to its creditworthiness due to difficulties in paying trade payables. Its colorful CEO, responsible for collections of receivables, is not providing for collections very well. He is much more of a good ole' boy marketing type. The firm is not performing very well, and faces large seasonal swings in business. The student is tasked with solving the dilemmas posed by the case.

1. Look at a map of Eastern North Carolina. Which of the towns served by KHF are resort areas? What proportion of KHF's business is resort business?
2. What are the characteristics of resort business in comparison to year-round business? Assuming these areas open for business around March 15th, and close around October 15th, would you say that KHF's overall business is seasonal?
3. Survey the financial condition and performance indicated by KHF's financial statements, and summarize your findings. Does anything stand out?
4. KHF is basically a merchandising firm, buying inventory, marking it up, and then selling it. Is KHF's dependence on trade accounts (both receivables and payables) surprising for a merchandising firm?
5. Develop a plan for solving KHF's problem.

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