The Grove Hotel has annual fixed costs applicable to rooms of $10 million for its 600-room hotel, average daily room rates of $105, and average variable costs of $25 for each room rented. It operates 365 days per year. The hotel is subject to an income tax rate of 40 percent.
1. How many rooms must the hotel rent to earn a net income after taxes of $720,000? of $360,000?
2. Compute the break-even point in number of rooms rented. What percentage occupancy for the year is needed to break even?
3. Assume that the volume level of rooms sold is 150,000. The manager is wondering how much income could be generated by adding sales of 15,000 rooms. Compute the additional net income after taxes.