Question - Brent Summers plans to purchase a proposed 100-rooms hotel fully furnished. The total cost is $8,000,000. He believes 70 percent of the cost can be financed with a loan from the Champaign National Bank at an annual interest rate of 8 percent. The projected paid occupancy is 75 percent. Brent requires a 15 percent return on his investment after the incorporated hotel pays 30 percent of its pretax income as income taxes. The estimated undistributed expenses excluding income taxes and interest expense total $800,000 annually. The estimated direct expenses of the rooms department are $15 for each room sold and $60,000 fixed for the year. Consider a year to have 365 days. Assume annual miscellaneous income of $10,000.
1. Determine the average price per room using the Hubbart Formula.
2. If double rooms are sold at a premium of 20 percent over singles, what are the prices of single and double rooms? Assume a 70 percent double occupancy rate.