A 25-room budget motel expects its occupancy next year to

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A 25-room budget motel expects its occupancy next year to be 80 percent. The owners' investment is $401,600. They want an after-tax return on their investment of 10 percent. Tax rate is 28 percent. Interest on a long-term mortgage is 10 percent. Present balance outstanding is $806,400. Depreciation rate on the building is 10 percent of the present book value of $700,200. Depreciation on the furnishings and equipment is at 20 percent 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, supplies, laundry, etc. are calculated to be $55,400 a year. The motel has other income from vending machines of $5,200 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 percent 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.

Reference no: EM13604005

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