Nanaimo Inn has 60 rooms and expects occupancy to be 70%. The owner wants to earn 10%
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Question:
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:
- Calculate the average required room rate using the above information. (8 marks)
- 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)
Expert Answer:
Total Costs Depreciation 1600000 20 years 80000 per year Total Fixed Costs 300000 other fixed expens... View the full answer
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