Question
Jimmy Dalton is executive vice president of Dmad company, is having an investment opportunity in the hospitality industry. The companyrequiresan 20% return on their investment
Jimmy Dalton is executive vice president of Dmad company, is having an investment opportunity in the hospitality industry. The companyrequiresan 20% return on their investment after taxes. Mr. Dalton has studied averagehotel properties to find the followings: a.Atotal investment of $3,500,000is required to buy the hotel. b.Legal tax rate is 20%.c.The rooms department generates 70% of the salesand operates with a CMR of 0.64.d.The food and beverage department generates the other 30% of sales and has a CMR OF 0.58.e.Fixed costs per year are estimated to be $450,000.i.What level of sales is required before Mr.Dalton would recommend investing in the hotel? ii.What is the break-even sales level?
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