# Final Exam - Final Exam 1(30 points ABC Lodging a 50-room...

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1. (30 points) ABC Lodging, a 50-room hotel, requires \$2,000,000 for construction. Equity will be \$1,000,000 and the rest will be a loan of \$1,000,000 at an interest rate of 10%. The owner desires an annual return of 16% on his equity. The income tax rate will be 36%. Depreciation cost will be \$80,000 per year. Interests and depreciation are the major fixed charges. Other fixed costs and fixed charges will be \$60,000. Undistributed operating expenses will total \$500,000. The hotel has no other operated departments. The estimated direct expenses of the room department will be \$10 per room sold. Occupancy is projected to be 70%. Requirement: a. Determine the target ADR using the Hubbart Formula (rounded to two decimal points). Desired Net Income 1,000,000 * .16 = 160,000 Pretax Income 160,000 * 1 - .36 = 102,400 Interest Exp 1,000,000 * .10 * 1 = 100,000 Income Bef Taxes (102,400 + 100,000) = 202,400 Dep op exp (80,000 + 60,000) = 140,000 Inc after op ex (202,400 + 140,000) = 342,400 Und op exp 500,000 Req op Dep Inc (342,400 + 500,000) = 842,400 Rm Dep Inc 842,400 Rm Dir Exp (50 * .70 * 365) = 12,775 * 10 = 127,750 Rm Revenue (842,400 + 127,750) = 970,150 Req ADR (970,150 / 12,775) = \$75.94 b. Assuming a double occupancy of 40% and a \$10 premium for a double room, what should be the single rate and double rate (rounded to two decimal points)? (.40 * 50 * .70) = 14

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Final Exam - Final Exam 1(30 points ABC Lodging a 50-room...

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