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HW chapter 7 - after taxes Mr Smith has studied a 40-room...

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Chapter 7 Homework 1. (2 points) XYZ Restaurant’s sales revenue increased by $32,000 due to the management’s efforts. Its CMR is 0.25. What is the maximum justifiable bonus for the management? If the owner gives $6,000 as bonus, by how much will Ib increase or decrease? 32000 * .25= 8000 and this is the maximum justifiable bonus. If bonus is 6000 Ib will increase by 2000. 2. (8 points) Note: This problem is similar to end-of chapter Problem 9 in the book (Discussion Question 15 in the outline). Please refer to the solution to discussion Q15 posted in discussion board before you do the problem below. Justin Smith, the executive vice president of Services Inc., is considering expanding the company’s operation into the hospitality industry via purchase of existing hotels. Services Inc. requires at least 10% return on its investment (money paid for purchasing a hotel)
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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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