Nanaimo Inn has 60 rooms and expects occupancy to be 70%. The owner wants to earn 10% return on total assets after tax.

Total assets: $2,400,000

Income tax rate: 25%

Depreciation: straight line (20 years) on assets of $1,600,000 (no salvage)

Other fixed expenses: $300,000

Direct costs: $100,000

Indirect costs $200,000

Mortgage interest: 10% on balance owing of $900,000

Mortgage principal: Annual principal payment required: $45,000

Room service has an operating loss of $50,000

Required:

1. Calculate the average required room rate using the above information. (8 marks)

2. If the differential between single and double rooms is $12 per night and 35% of the rooms sold are doubles, calculate the single and double room rates. (4 marks)