Complete the Test Your Skills exercises by placing your answers in the shaded text boxes. 1. Jerry Dickson has been approached by the franchise sales representative of a major hotel chain. The sales representative is trying to interest Jerry in building one of the franchise brand's full-service hotels. The hotel will cost $8,000,000 to build and will consist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year and other nonoperating expenses will be $250,000 per year undistributed operating expenses related to operating the hotel are $1,000,000 F&B department and $50,000 from all other non-rooms departments. assuming a 40% tax rate. At an assumed 60% occupancy level, the rooms manager has calculated that payroll and related expenses and other expenses for rooms is $45 per room, and The hotel is projected to make an operating income of $125,000 per year from the Jerry is interested in the project if he can achieve a 12% return on the investment, a. Utilizing the Hubbart room rate formula, what is the room rate required for Jerry to meet his 12% investment target? b. Assume Jerry decided that, due to the potentially risky nature of this venture, he required a 15% (not 12%) return on his investment, what is the room rate required for Jerry to meet this more aggressive investment target? c. Assume the occupancy rate estimated to be achieved by the franchise sales representative was 70% and this number was utilized to compute the Hubbart rate rather than Jerry's more conservative 60%), what would the sales representative tell Jerry his ADR would have to be to achieve Jerry's 15% investment goals? d. Assume instead, that the food and beverage operating income is estimated at $75,000 per year rather than $125,000. Using the 15% desired investment return and a 70% occupancy rate, what new room rate would allow Jerry to meet his investment goals? Complete the Test Your Skills exercises by placing your answers in the shaded text boxes. 1. Jerry Dickson has been approached by the franchise sales representative of a major hotel chain. The sales representative is trying to interest Jerry in building one of the franchise brand's full-service hotels. The hotel will cost $8,000,000 to build and will consist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year and other nonoperating expenses will be $250,000 per year undistributed operating expenses related to operating the hotel are $1,000,000 F&B department and $50,000 from all other non-rooms departments. assuming a 40% tax rate. At an assumed 60% occupancy level, the rooms manager has calculated that payroll and related expenses and other expenses for rooms is $45 per room, and The hotel is projected to make an operating income of $125,000 per year from the Jerry is interested in the project if he can achieve a 12% return on the investment, a. Utilizing the Hubbart room rate formula, what is the room rate required for Jerry to meet his 12% investment target? b. Assume Jerry decided that, due to the potentially risky nature of this venture, he required a 15% (not 12%) return on his investment, what is the room rate required for Jerry to meet this more aggressive investment target? c. Assume the occupancy rate estimated to be achieved by the franchise sales representative was 70% and this number was utilized to compute the Hubbart rate rather than Jerry's more conservative 60%), what would the sales representative tell Jerry his ADR would have to be to achieve Jerry's 15% investment goals? d. Assume instead, that the food and beverage operating income is estimated at $75,000 per year rather than $125,000. Using the 15% desired investment return and a 70% occupancy rate, what new room rate would allow Jerry to meet his investment goals