Chapter 5 Homework

Review Questions

1. What is leverage and why might an owner want to maximize theirs?

2. The Elegant Dump Inn has the below results for the month of August:

Rooms Sold: 3441

Occupancy %: 74%

ADR: $220

Profit Margin: 12%

How many rooms does the hotel have?

How much Revenue was generated in August?

What was the RevPAR?

How much net income was generated in August?

3. The Elegant Dump Inn has the below ratios:

Return on Equity: 10%

Total Asset Turnover: 1.5

Profit Margin: 5%

Total Assets are $5,000,000 and the numbers on the balance sheet have remained constant for the last 2 years.

What are the Inns annual sales?

What are the Inns net income?

What is the amount of the Inns total debt (liabilities)?

4. Using the below information, calculate food cost percentage and inventory turnover ratio:

Beginning Inventory: $15,000

Ending Inventory: $5,000

Purchases: $7,000

Employee Meals: $1000

Food Sales: $60,000

5. Explain what each of the below means (example: A Current Ratio of 1.5 means that for every $1.00 of current liabilities, you have $1.50 of current assets.):

-Accounts Receivable Turnover of 8.0

-Debt to Equity Ratio of .5

-Debt Service Coverage Ratio of 4.0

-Profit Margin of 15%

-Labor Cost of 40%

Beverage Cost of 30%

Operating Cash Flow to Total Liabilities of 55%