Chapter 12Planning and Evaluation Operationsintroduces Hubbart Formula Approach to decide on the room rate. The Hubbart Formula Approach calls for an average room rate that covers expenses and provides a fair return to the investors.You're invited to compute that rate from the abbreviated but complete set of data that follows:

Investment (also fair market value)

Land$3,000,000

Building $25,000,000

Furniture and equipment $6,000,000

Nonappropriated expenses, such as advertising, repairs, etc. $1,200,000

Income from all operating departments except rooms, net of losses $3,200,000

Rooms available for sale 563

Nonoperating expenses, such as insurance, taxes, and depreciation $510, 000

Desired return on investment 16%

Percentage of Tax: 40%

Interest on debt of $25,000,00014%

Percentage of occupancy 71%

IMPORTANT: 1) Carefully readthe steps listed on Page 428-429, and follow thePage 430Exhibit 5Calculating Average Room Rate: Hubbart Formulato solve the above problem. 2) You MUST illustrate each step of the calculation in order to receive a full score(10 points).