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 owner’s 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

Answer rating: 100% (QA)

Rooms daily given 80 Occupancy given 72 Projected yearly 80 rooms X 7... View the full answer