Question
The Durham Inn, a proposed 80-room limited service inn, will cost $4,860,000 to build. The owners want a 14 percent return on investment after their
The Durham Inn, a proposed 80-room limited service inn, will cost $4,860,000 to build. The owners want a 14 percent return on investment after their company pays income taxes of 22 percent. Annual mortgage payments are estimated at $423,716 and other non-operating expenses will be $275,000 per year. The estimated undistributed operating expenses, not including taxes and interest expenses, total $950,000. The hotel is projected to make an operating income of $180,000 per year from all the other non-rooms departments. The occupancy rate is expected to be 72%. The estimated direct expenses of the rooms department are $32.50 for each room sold.
Using the Hubbart Formula, determine the average price of a room. (Show all work!)
a. Compute the after-tax net income required to meet the owners ROI requirement.
b. Compute the required before-tax net income.
c. Compute the estimated rooms operated department income
d. Compute the rooms revenue
e. Compute the required ADR
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