Problem 1. Gerard has been successfully operating a bed and breakfast in South Carolina from his home in Atlanta. Based on the recurring income he receives from that property, he’s decided to expand his work in the hospitality industry. Although he wants to open a luxury boutique hotel in the trendy part of Atlanta, he’s instead decided to work with Annisa to purchase a 25-room budget motel.
Based on historical records, Gerard and Annisa expect its occupancy next year to be 80%. Their owners’ investment is $402,800. They want an after-tax return on their investment of 15%. Tax rate is 25%.
- Interest on a long-term mortgage is 10%. Present balance outstanding is $806,400.
- Depreciation rate on the building is 10% of the present book value of $700,200. Depreciation on the furnishings and equipment is at 20% of the consolidated present book value of $150,400
- Other known fixes costs total $141,800 a year
- At 80% occupancy rate, the mote’s operating expenses, wages, supplies, and laundry are calculated to be $55,400 a year
- The motel has other income from vending machines of $5,210 a year
- To cover all costs and produce the required net income after tax, what should the motel’s average room rate be next year?
- If the motel operates at 30% double occupancy and has an $8.00 spread between its single and double rates, what will single and double room rates be? Assume only one common room size, all with the same rates.
Problem 2. Tiayana and Maria met at CityTech years ago, and now own a 140-seat dining room, featuring new American cuisine. It’s the hottest place in Brooklyn. Tiayna and Maria, but much of their success is because they keep close tabs on the restaurant’s financials. Right now, they’re calculating the seat turnover and the number of customers per day, etc.
- For each meal period and for each day of the week calculate the seat turnover.
- Calculate the average number of customers per day and the average seat turnover for the week for each meal period.
- List some of the ways in which the information in parts A and B would be useful to them.