Crystal Meadows of Tahoe Essays

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Crystal Meadows of Tahoe, Inc

Crystal Meadows of Tahoe (CMOT) is a holding company for two different ski resorts. The majority of revenues from this company come from the sale of lift tickets, ski rentals, skiing lessons, and food and beverage sales; revenues are also primarily generated during the winter months. CMOT has recently partnered with Toiyabe Resort Company for the development of a year-round ski resort in the Tahoe area, and have invested $5,300,000 in the venture. CMOT and Toiyabe plan to begin construction of the resort in 1992. CMOT also plans to invest $8,200,000 in their two ski resorts (Lake Ridge and Crystal Meadows) in 1992.

During 1991, CMOT saw very positive increases to net income and …show more content…

Will Crystal Meadows of Tahoe be able to finance its planned 1992 capital investment program with cash provided by operations during that year?
During the 1991 fiscal year, CMOT saw better skiing conditions for more days than in its previous history. Given that the majority of revenues at CMOT come from operations including, lift tickets, ski rentals and lessons, and concessions, it is not guaranteed that CMOT will see similar revenues in 1992.

CMOT is proposing capital investments of $8,200,000 for 1992. All else remaining equal, including cash taken in from operations and stability in other expenses, this proposed capital expenditure will negatively impact cash flow and decrease cash on hand for 1992 by nearly 75%. It would be possible for CMOT to finance their capital investment program with cash provided from operations, but not with cash provided from 1992’s operations alone. If these investments are made completely from cash, and finance sources are not utilized, there will be a significant increase in CMOT’s assets, which will in turn have a positive effect on shareholder’s equity, since there will not be any further liabilities assumed by the company. There will also be stresses placed on CMOT’s liquidity, which cannot be fully gauged until revenues from the Toiyabe investments come to fruition.

If the aim of an

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