Should the Scuba Business Dive into the Expansion? What are the


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Should the Scuba Business Dive into the Expansion? What are the advantages of the proposed dive shop? What are the disadvantages of the proposed dive shop? Project a pro-forma income statement, balance sheet, and statement of cash inflows and outflows for fiscal 1997 and 1998 for ONLY the new location, using the information presented in the case.  Present the financials in Cayman Island dollars; do not translate into US dollars. The fiscal year starts June 1 and ends May 31. Clearly show how your projected your revenues. Hint: use the regression equation shown in exhibit 3 to project revenues, but not profits, and adjust for the circumstances of the new shop. State clearly any assumptions that you make to complete the financial statements. In your opinion, should Don Foster open the new shop?  Why or why not? Ignore any foreign currency effects and income taxes. Please round to the nearest dollar. ATTACHMENT PREVIEW Download attachment Scuba.pdf AICPA Case Development Program Case No. 97-01: Should the Scuba Business Dive Into the Expansion ◊ 1 SHOULD THE SCUBA BUSINESS DIVE INTO THE EXPANSION? Michael H. Moms, Professor of Accountancy University of Notre Dame, Notre Dame, Indiana Andrew M. Crowe, Controller Don Foster’s Dive Cayman, Ltd., Cayman Islands As controller and general manager of Don Foster’s Dive Cayman, Ltd., Andy Crowe knew that something had to be done to improve the profit performance of the company. Although profits increased for several years after incorporating in July of 1991, sales revenue declined during the last two years, with the company reporting a loss for fiscal 1996. Andy knew that the current fleet of dive boats were being underutilized, so the timing was right to examine ways to expand sales revenue. ENVIRONMENT Don Foster’s Dive is located in the Cayman Islands, a self-governing British crown colony, situated 480 miles south of Miami. To vacationers, the Cayman Islands mean calm clear waters and a carefree world of outdoor pleasures. To scuba divers and snorkelers, the Caymans are synonymous with the world’s best diving. Not only are the quality and variety of the dive sites spectacular, but the Cayman Islands also possess a unique dive site called Stingray City. At this location, divers and snorkelers swim with 30 to 40 wild stingrays that feed from human hands. To investors, the Cayman Islands are a reliable tax haven. There are no corporate, capital gains, payroll, property or withholding taxes on the islands. The absence of taxes on income together with political and racial stability, has attracted the attention of investors seeking a tax free base for their operations. Currently there are approximately 32,000 companies, 550 banks, 900 mutual funds and 400 insurance companies of various categories registered or licensed in the Cayman Islands. Those companies operate from an environment in which there are no excessive restrictions on their freedom to trade or their ability to transact business in any part of the world. In addition, disclosure of information by government officials, professional agents, attorneys and accountants and their staffs is forbidden by law under severe penalties. BUSINESS Don Foster’s Dive specializes in providing vacationers with a wide variety of exciting watersports activities including the rental of snorkeling equipment, wave runners, sail boats, wind surfers, floating mats, and plastic kayaks. Parasailing and other local excursions are also offered through Don Foster’s Dive, but its primary line of business is providing scuba diving trips and instruction. Copyright 1998 by the American Institute of Certified Public Accountants (AICPA). Cases developed and distributed under the AICPA Case Development Program are intended for use in higher education for instructional purposes only, and are not for application in practice. Permission is granted to photocopy any case(s) for classroom t…

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