Bottom-up pricing for hotel rooms

The following information is given about a motel.
Room number:	100		Occupancy rate		70%
Owners' equity	$400,000		Expected after-tax return		12%
Tax rate	35%
Mortgage	$800,000		Interest rate		12%
Building's net book value	$1,200,000		Depreciation rate		10%
Furniture and equip.	$250,000		Depreciation rate		20%
Other fixed costs	$150,000
GM's salary	$80,000
Room variable costs	60%

Required

1. What is the total fixed cost?

2. Bottom-up approach

3. What is the required average room rate?

4. The resort has 30 rooms with a ocean view and are always sold out before standard rooms. The manager wants to charge the ocean view room $15 more than the standard rooms. Based on the given occupancy rate, what should be the ocean view room rate and the standard room rate?

Answer rating: 100% (QA)

SOLUTION 1 To calculate the total fixed cost we need to add up all the fixed costs Owners equity oth... View the full answer