Question

P6.2 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 276 PROBLEMS 291 is $806,400. investment of 15%. Tax rate is 25%. Interest on a long-term mortgage is 10%. Present balance outstanding 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, sup- plies, 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.

P6.2.a Calculate the ROI. P6.2.a Calculate the Income tax. P6.2.a Calculate the Other income. P6.2.a Calculate the Annual rooms sold. P6.2.a Calculate the ADR (round to two decimal points). Please the answers send to me on this problem was wrong. please can the answers be label, Please I did not see the answer in the income statement More explanation can really help me.

Answer 1

a..ROI=Return on Investment=Owner's invetsment*After-tax return%

ie. 402800*15%=

60420

(after-tax)

Income -tax (from Inc. stat.) ---$ 20140

Expenses:
Interest on long-term mortgage (806400*10%)	80640
Depn. On Bldg.(700200*10%)	70020
Depn.on furnishings & eqpt.(150400*20%)	30080
Fixed costs	141800
Opg. Expenses	55400
Total expenses	377940
Less: other income	5210
Net expenses to be covered	372730

Annual rooms sold= 25*80%= 20

a. so, After-tax value of ((Annual no.of rooms sold*Av. Room rate)-net expenses) SHOULD EQUAL the after-tax ROI calculated above,

ie. ((20*x)-372730)*(1-25%)=60420

Solving for x, we get the

motel's average room rate next year should be

$22,664.50

ADR= $ 22664.50

b. Out of the 20 rooms ,

30%*20% = 6 rooms are double occupany rooms

IF ADR for the single-occupied (20-6=14 rooms) is supposed as $ x

then ADR for the double occupied= x+8

So, forming an equation , as in a above,

ie. (((14*x)+(6*(x+8)))-372730)*(1-25%)=60420

Solving for x,

we get the rate (ADR) for single room as $ 22662. 10

then, ADR for double room will be 22662.10+8=22670.10

Income statement	Single occupancy	Single+Double
Room revenues	453290	453290
Expenses:
Interest on long-term mortgage	80640	80640
Depn. On Bldg.	70020	70020
Depn.on furnishings & eqpt.	30080	30080
Fixed costs	141800	141800
Opg. Expenses	55400	55400
Total expenses	377940	377940
Operating income	75350	75350
Add: Other income	5210	5210
Income before tax	80560	80560
Less:Tax at 25%	20140	20140
Net income	60420	60420