Problem: Josie's Place Inn, a proposed 30 rooms motel with a fuuly equipped restaurant, will cost $750000 to construct.
An estimated additional $50000 will be invested in the businedd as working capital.
Of the total $800000 investment, $400000 is to be secured from the Columbo Federal Bank at the rate of 10% interest.
The projected occupancy rate is 80% for the year.
The owners desire a 15% return on equity after the corporation pays income taxes of 25%.
The estimated undistributable expenses, not including income taxes and interest expense, total $480000.
The estimated direct expenses of the rooms department are $7 for each room sold.
Consider a year to have 365days.
Question 1. Determine the average price of a room using the Hubbart Formula, assuming the contribution from the restaurant department is $0.
Question 2. If the double rooms are sold at a premium of $10 over singles, what is the price of singles and double? Assume a double occupancy rate of 40%
Question 3. If the restaurant generates a department profit of $20000 per year, how much may average room rates be decreased and still meet the owners' financial goals?