The Manager of a Large Luxury Hotel Chain Is Currently

question 64

Multiple Choice

The manager of a large luxury hotel chain is currently negotiating a four year contract with a linens supplier. The linens company will supply fresh laundered bedding and towels to the hotel over a four year period; however, the hotel chain can ends its contract with the linens company at the end of the first, second, or third years if the linens company does not supply quality linens. What can the manager of the hotel chain do to avoid the end- game problem?

• A)Pay the linens company in full at the end of the third year.
• B)Pay the linens company in full at the beginning of the first year.
• C)Inform the linens company that the hotel chain will nominate them for a linens industry award if the linens company provides quality linens all four years.
• D)Pay the linens company in full after the second year.

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Definitions:

Net Present Value

A method of evaluating investments by calculating the present value of future cash flows minus the initial investment cost, used to assess the profitability of an investment.

Cash Inflows

Money received by a business from its operational, investment, and financing activities.

Internal Rate

Often related to the internal rate of return (IRR), it's a metric used in financial analysis to estimate the profitability of potential investments.

Time Value

The theory that money today is more valuable than the same quantity in the future, due to its potential to accumulate additional value.