A proposed budget inn of 150 guestrooms is scheduled to open. The occupancy is expected...
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Accounting
A proposed budget inn of 150 guestrooms is scheduled to open. The occupancy is expected to be 70%. The owner seeks your advice on pricing. Although he knows that he will modify your recommendation based on revenue management results, he desires a minimum target room rate. Determine the required ADR (Average Daily Rate) from the following information.
Owner investment = $2,000,000
Desired ROI = 20%
Tax rate = 20%
Funds borrowed = $3,000,000
Interest rate = 12% annual
Forecasted annual costs
Fixed charges other than interest = $600,000
Management fees = 5% of room sales
Room department expenses = 25% of room sales.
Undistributed operating expenses = $200,000 + 5% of room sales
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