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In: Accounting

1. A 335-room hotel property recorded in 2004 a 66.6% occupancy and an ADR of $117.98....

1. A 335-room hotel property recorded in 2004 a 66.6% occupancy and an ADR of $117.98. What is the property’s franchise fee (1) on a per available room basis and (2) as a percentage of rooms revenue if the agreement required the hotel to pay a reservation fee of $7.65 per available room per month; a royalty fee of 5% of rooms revenue; an advertising fee of 2.3% of rooms revenue; and a frequent traveler program fee of $5.00 per occupied room. The hotel had frequent stay guests totaling 6% of the occupied rooms. The initial fee is a minimum of $45,000 plus $300 per room for each room over 150.

Please calculate annual room revenue (round to a whole number) $ ___

2. Please use the information from Question 1 to calculate the Royalty Fee.

Royalty fee (round to a whole number) $ ___

3.Please use the information from Question 1 to calculate the Reservation Fee.

Reservation fee (round to a whole number) $ ___

4.Please use the information from Question 1 to calculate the Advertising fee.

Advertising fee (round to two decimal places) $ ___

5.Please use the information from Question 1 to calculate the Frequent traveler fee.

Frequent traveler fee (round to two decimal places) $ ___

6.Please use the information from Question 1 to calculate the Initial fee.

Initial fee (round to a whole number) $___

7.Please use the information from Question 1 to calculate the Total franchise fee.

Total franchise fee (round to a whole number) $ ___

8.Please use the information from Question 1 to calculate the Franchise fee on PAR basis.

Franchise fee on PAR basis (round to two decimal places) $___ PAR/yea

9.Please use the information from Question 1 to calculate the Franchise fee as a % of revenue.

Franchise fee as a % of revenue (round to two decimal places) ___%

Expert Solution

1. Annual Room Revenue = Number of Rooms * Occupancy Rate * ADR * Number of days in a year

= 335 * 66.6% * 117.98 * 365

= $9,607,719

2. Royalty Fee = Room Revenue * 5%

= 9,607,719 * 5%

= $480,386

3. Reservation Fee = Number of Available Rooms * Rate * Number of Months

= 335 * 7.65 * 12

= $30,753

4. Advertising Fee = Room Revenue * 2.3%

= 9,607,719 * 2.3%

= $220,977.54

5. Frequent Traveller Fee = Number of Rooms * Occupancy Rate * Frequent Guest Occupancy * Rate * Number of Days

= 335 * 66.6% * 6% * 5 * 365

= $24,430.55

6. Initial Fee = 45,000 + [300*(335-150)]

= 45,000 + [300 * 185]

= 45,000 + 55,500

= $100,500

7. Total Franchise Fee = 480,386 + 30,753 + 220,977.54 + 24,430.55

= $756,547

8. Total Franchise Fee on PAR Basis = Total Franchise Fee / Number of Available Rooms

= 756,547 / 335

= $2,258.35

9. Franchise fee as a % of Revenue = Total Franchise Fee / Annual Room Revenue * 100

= 756,547 / 9,607,719 * 100

= 7.87%

Note: It is assumed that franchise fee includes all on going costs and does no include initial fee paid. However, if the same is considered to be a part of the franchise fee, it should be included and all the subsequent transactions will vary.

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ekkarill92 answered 2 years ago

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