Goran Blomberg is interested in investing in a new rooms-only lodging property. He needs some financial projections for the proposed operations. He provides the following:
1. Rooms sales
a. Average room rate—$50
b. Average daily occupancy—65%
c. Available rooms per day—50
2. Fixed labor—$12,000/month
3. Other fixed expenses
a. Depreciation—$5,000/month
b. Utilities—$3,000/month
c. Insurance—$1,000/month
d. Other—$3,000/month
4. Variable labor—15%
5. Other variable expenses
a. Other room expenses—5%
b. Administration—4%
c. Marketing—5%
d. Utilities—3%
e. Other—8%
6. Income tax rate—20%
1. Determine the projected net income using the above information. Assume the property will be open 365 days a year.
2. Determine the projected net income if the room rate is increased to $55.
3. Independent of #2, determine the projected net income if the room rate is increased to $60 and variable labor is 18%.