Reference no: EM133342122
QUESTION 1
Crumbling Resort Hotel has a dining room that gets all its business revenue from the people occupying rooms in the hotel. The hotel has 200 rooms. During the month of July, 2023, hotel management expects an occupancy rate of 88%; since Crumbling Resort is a family-oriented place, there will be on average 3 people in each occupied room per night.
Based on knowledge of past years, Crumbling's management knows that 90% of their hotel guests eat breakfast in the hotel dining room, 30% eat lunch there and 75% eat dinner there. The dining room serves three meals a day, seven days a week. Average meal prices are:
Breakfast: $ 10.80
Lunch: 19.50
Dinner: 32.70
Total: $ 63.00
=====
REQUIRED:
- Why does the hotel expect only a small percentage of its guests to eat lunch there?
- Carefully showing your work, please calculate the total revenue that the dining room should earn during the month of July, 2023.
- If the dining room at Crumbling Resort spends 30% of its revenue on food costs, how much money will remain, that can be contributed towards fixed costs by the end of July, 2023, based entirely on revenues earned in that month?
Question 2
Bryan Bessner has invested $600,000 in a small theatre. He would like to see a 10% after-tax return on his investment this year. Bryan faces a personal tax rate of 40%.
There are many costs involved in running a theatre. Estimates indicate that variable costs will use up 67% of the revenue earned by the theatre.
Fixed costs would be:
Salaries.....................$572,000
Insurance................... 30,000
License..................... 8,000
Utilities..................... 24,000
Also, depreciation on the theatre building itself would be 10% of the building's $1,000,000 book value.
Part of Bryan's investment in the theatre was used to buy equipment, costing $175,000. This equipment depreciates by 20% per year.
Part of Bryan's investment in the theatre came through a bank loan of $200,000, on which he will be paying 8% interest this year.
REQUIRED:
a. Please calculate the total amount of revenue that this theatre will need to earn this year, in order to meet all costs and allow for Bryan's expected after-tax return.
b. If the theatre has 250 seats, and Bryan expects it to be open 4 nights per week for 50 weeks of the year, find the average seat price that must be charged in order to reach the revenue goal you calculated in part a above. Assume that on average, only 80% of seats can be sold each night.