A 200 room hotel, is projected to cost $9,900,000 inclusive of land, building, equipment, and furniture. An additional $100,000 is needed for working capital. The hotel is financed with a loan of $ 7,500,000 at 12 percent annual interest with the owners providing cash of $ 2,500,000. The owners desire a 15 percent annual return on their investment. A 75 percent occupancy is estimated, thus 54,750 rooms will be sold during the year (200 * .75 * 365). The income tax rate is 40 percent.

1. Calculate desired profit (= ROI x Investment) 2. Calculate pretax profit (= after tax profit / (1 tax rate)) 3. Calculate interest expense, fixed charges, and management fees 4. Calculate undistributed operating expenses 5. Estimate non-room operated department income or losses 6. Calculate the required rooms department income 7. Determine rooms department revenue 8. Calculate the average room rate

Pricing rooms - Practice 1 Additional expenses are estimated as follows: Property taxes $250,000 Insurance $50,000 Depreciation Administrative & General A 200 room hotel, is projected to cost $9,900,000 inclusive of land, building, equipment and furniture. An additional $100,000 is needed for working capital. The hotel is financed with a loan of $ 7,500,000 at 12 percent annual interest with the owners providing cash of $ 2,500,000. The owners desire a 15 percent annual return on their investment. A 75 percent occupancy is estimated, thus 54,750 rooms will be sold during the year (200 * .75 * 365). The income tax rate is 40 percent. Sales and Marketing Property Operation & Maintenance Utility costs $300,000 $300,000 $200,000 $200,000 $300,000 The other departments' incomes are estimated as follows: Food Beverage $90,000 $60,000 $20,000 $100.000 Telecommunications Rentals and other income Rooms department direct expenses are $10 per room sold