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 ...view middle of the document...
In 1991, CMOT had $5,425,000 in net cash provided by operating activities. During the same period, CMOT had $5,045,000 in net cash used in investing activities. These investments brought CMOT’s net increase in cash and equivalents to $825,000, which is roughly 25% of $3,272,000 of cash carried over from the previous year.
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...