Unformatted text preview: after taxes. Mr. Smith has studied a 40-room hotel property that yields the following results: a. The rooms department generates 60% of the sales and operates with a CMR of 0.7. b. The F&B department generates the other 40% of sales and has a CMR of 0.5. c. Fixed costs per year are estimated to be $400,000. d. In order to purchase the hotel, Services Inc. would have to invest $1,800,000. e. Services Inc.’s tax rate is 40%. Requirements: What level of sales is required before Mr. Smith would recommend investing in the hotel? CMR = .70x.6 + .50x.4 = .62 NI required to make a 10% return on investment = 1,800,000 x .10 = 180,000 Ib = 180,000 / (1-0.4) = 300,000 Sales revenue required to recommend investing in the hotel is Ib = (300,000 + 400,000) / .62 = 1,129,032.25...
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- Spring '05
- Justin Smith, maximum justifiable bonus