a. To cover all costs and produce the required net income after tax, what should the motel’s average room rate be next year? b. If the motel operates at 30% double occupancy and has an $8.00 spread between its single and double rates, what will the single and double room rates be? Assume only one common room size, all with the same rates.
a. To cover all costs and produce the required net income after tax, what should the motel’s average room rate be next year? b. If the motel operates at 30% double occupancy and has an $8.00 spread between its single and double rates, what will the single and double room rates be? Assume only one common room size, all with the same rates.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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10. A 25-room budget motel expects its occupancy next year to be 80%. The 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 fixed costs total $141,800 a year.
■ At 80% occupancy rate the motel’s operating expenses, wages, supplies, and laundry, etc. are
calculated to be $55,400 a year.
■ The motel has other income from vending machines of $5,210 a year.
a. To cover all costs and produce the required net income after tax, what should the motel’s
average room rate be next year?
b. If the motel operates at 30% double occupancy and has an $8.00 spread between its single and
double rates, what will the single and double room rates be? Assume only one common room
size, all with the same rates.
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