Jerry Dickson has been approached by the franchise sales representative of a majorhotel chain. The sales representative is trying to interest Jerry in building one of thefranchise brand's full-service hotels. The hotel will cost $8,000,000 to build and willconsist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year andother nonoperating expenses will be $250,000 per year.At an assumed 60% occupancy level, the rooms manager has calculated thatpayroll and related expenses and other expenses for rooms is $45 per room, andundistributed operating expenses related to operating the hotel are $1,000,000.The hotel is projected to make an operating income of $125,000 per year from theF&B department and $50,000 from all other non-rooms departments.Jerry is interested in the project if he can achieve a 12% return on the investment,assuming a 40% tax rate. Question: Utilizing the Hubbart room rate formula, what is the room rate required for Jerry tomeet his 12% investment target?
Jerry Dickson has been approached by the franchise sales representative of a majorhotel chain. The sales representative is trying to interest Jerry in building one of thefranchise brand's full-service hotels. The hotel will cost $8,000,000 to build and willconsist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year andother nonoperating expenses will be $250,000 per year.At an assumed 60% occupancy level, the rooms manager has calculated thatpayroll and related expenses and other expenses for rooms is $45 per room, andundistributed operating expenses related to operating the hotel are $1,000,000.The hotel is projected to make an operating income of $125,000 per year from theF&B department and $50,000 from all other non-rooms departments.Jerry is interested in the project if he can achieve a 12% return on the investment,assuming a 40% tax rate. Question: Utilizing the Hubbart room rate formula, what is the room rate required for Jerry tomeet his 12% investment target?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Please show me the solution, thanks.
Jerry Dickson has been approached by the franchise sales representative of a majorhotel chain. The sales representative is trying to interest Jerry in building one of thefranchise brand's full-service hotels. The hotel will cost $8,000,000 to build and willconsist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year andother nonoperating expenses will be $250,000 per year.At an assumed 60% occupancy level, the rooms manager has calculated thatpayroll and related expenses and other expenses for rooms is $45 per room, andundistributed operating expenses related to operating the hotel are $1,000,000.The hotel is projected to make an operating income of $125,000 per year from theF&B department and $50,000 from all other non-rooms departments.Jerry is interested in the project if he can achieve a 12% return on the investment ,assuming a 40% tax rate.
Question:
Utilizing the Hubbart room rate formula, what is the room rate required for Jerry tomeet his 12% investment target?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education