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Jerry Dicksonhas been approached by the franchise sales representative of a majorhotel chain. The sales representative is trying to interest Jerry in building one of thefranchise brands full-service hotels. The hotel will cost $8,000,000 to build and willconsist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year andother nonoperating expenses will be $250,000 per year.At an assumed 60% occupancy level, the rooms manager has calculated thatpayroll and related expenses and other expenses for rooms is $45 per room, andundistributed operating expenses related to operating the hotel are $1,000,000.The hotel is projected to make an operating income of $125,000 per year from theF&B department and $50,000 from all other non-rooms departments.Jerry is interested in the project if he can achieve a 12% return on the investment,assuming a 40% tax rate. a. Utilizing the Hubbart room rate formula, what is the room rate required for Jerry tomeet his 12% investment target? b. Assume Jerry decided that, due to the potentially risky nature of this venture, herequired a 15% (not 12%) return on his investment. What is the room rate requiredfor Jerry to meet this more aggressive investment target? c. Assumetheoccupancyrateestimatedtobeachievedbythefranchisesalesrepresentative was 70% and this number was utilized to compute the Hubbart rate(ratherthan Jerrysmore conservative 60%).What wouldthe salesrepresentativetell Jerry his ADR would have to be to achieve Jerrys 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 returnand a 70% occupancy rate, what new room rate would allow Jerry to meet hisinvestment goals?

Chapter 8, Question 1 Step 1. Calculate the hotel's target before-tax net income. Owner's investment ROI After-Tax Net Income After-Tax Net Income Tax Before-Tax Net Income Step 2. Calculate estimated nonoperating expenses. Mortgage Other Nonoperating Expenses Total Nonoperating Expenses Step 3. Calculate estimated undistributed operating expenses. Undistributed Operating Expenses Step 4. Calculate estimated operated departments income excluding rooms. F&B Operating Income Other Non-Rooms Income Total Non-Rooms Operating Income Step 5. Calculate the operated department income for rooms. Chapter 8 Q1 Before-Tax Net Income Non-Operating Expenses Undistributed Operating Expenses Total Non-Rooms Operating Income Rooms Operated Department Income Step 6. Calculate the estimated rooms department revenues based on estimated occupancy. Rooms Days in Period Occupancy % Total Rooms Total Rooms Expense per Room Total Room Expenses Rooms Operated Department Income Total Room Expenses Rooms Revenue Step 7. Calculate the hotel's required ADR. Rooms Revenue Total Rooms ADR Chapter 8 Q1 a. b. c. d. Chapter 8 Q1 ADR with 12% ROI ADR with 15% ROI ADR with 15% ROI and 70% Occ% ADR with 15% ROI and 70% Occ% and $75,000 F&B Operating Income Chapter 8, Question 2 Calculate the net ADR Yield percentages for the following distribution channels: Distribution Channel Third-party Internet Sales Franchisor Delivered Sales Travel Agent Sales Walk-Ins Room Rate $167.95 $165.90 $151.50 $149.95 Fees Net ADR Yield a. What is the net ADR yield on rooms delivered via the hotel's third-party Internet partners? b. What is the net ADR yield on rooms delivered via the hotel's franchisor? c. What is the net ADR yield on rooms delivered via travel agents? d. What is the net ADR yield on rooms sold to walk-ins? Answers: a. b. c. d. Chapter 8 Q2 Chapter 8, Question 3 Thandi's Hotel 250 rooms Day Monday Tuesday Wednesday Thursday Friday Five Day Total Rooms Sold 205 230 226 228 195 ADR $117.21 135.45 131.25 132.22 Occ % 82.0% 92.0% 90.4% 78.0% 126.80 Darla's Hotel 250 rooms RevPAR 124.61 118.65 120.58 89.86 Rooms Sold 158 249 230 248 138 ADR 89.53 91.14 92.15 101.51 Occ % 63.2% 99.6% 99.2% 81.8% RevPAR $62.64 89.17 83.85 91.41 56.03 76.62 a. What was Thandi's RevPar on Monday? b. What was Darla's ADR on Monday? c. What was Darla's occupancy % on Wednesday? d. What was Thandi's occupancy % on Thursday? e. What was Thandi's ADR on Friday? f. What was Darla's occupancy % on Friday? g. How many rooms did Thandi sell during the five days? h. What was Thandi's occupancy% for the five days? i. What was Thandi's five day RevPAR total? j. How many rooms did Darla sell during the five days? Chapter k. What8was Darla's ADR for the five day period? Q3 l. Did Thandi or Darla have a higher RevPAR during this five-day period? What do you think was the reason for this difference? h. What was Thandi's occupancy% for the five days? i. What was Thandi's five day RevPAR total? j. How many rooms did Darla sell during the five days? k. What was Darla's ADR for the five day period? l. Did Thandi or Darla have a higher RevPAR during this five-day period? What do you think was the reason for this difference? Answers: a. b. c. d. e. f. g. h. i. j. k. l. Chapter 8 Q3 l. Chapter 8 Q3 Chapter 8, Question 4 The Carlton Hotel Income Statements For October 2009 and 2010 October Last Year 2009 Revenue Rooms Non Rooms Total Revenue % October This Year 2010 % 430,000 115,000 78.90% 21.10% 100.00% 465,000 118,000 79.76% 20.24% 100.00% Operated Department Expenses Rooms Non-Rooms Total Operated Department Expenses 87,000 127,500 214,500 15.96% 23.39% 39.36% 97,500 123,000 220,500 16.72% 21.10% 37.82% Total Operated Department Income 330,500 60.64% 362,500 62.18% Total Undistributed Operating Expenses 168,500 30.92% 177,950 30.52% 14,210 10,925 2.61% 2.00% 15,100 11,500 2.59% 1.97% 136,865 25.11% 157,950 27.09% 9,800 1.80% 10,100 1.73% 127,065 23.31% 147,850 25.36% Income Taxes 64,896 11.91% 67,104 11.51% Net Income 62,169 11.41% 80,746 13.85% Gross Operating Profit Rent, Property Taxes, and Insurance Depreciation and Amortization Net Operating Income Interest Income Before Income Taxes Flow Through a. What were the total revenues in October 2009 and October 2010? b. What was the GOP in dollars in October 2009 and October 2010? Chapter 8 Q4 c. What was the percentage of GOP to total revenues in October 2009 and October 2010? d. What was the flow-through percentage achieved by Santi's hotel? What is your a. What were the total revenues in October 2009 and October 2010? b. What was the GOP in dollars in October 2009 and October 2010? c. What was the percentage of GOP to total revenues in October 2009 and October 2010? d. What was the flow-through percentage achieved by Santi's hotel? What is your assessment of that percentage? Answers: a. b. c. d. Chapter 8 Q4