The Shayla Bungalows, a proposed 150-room hotel with a fully equipped restaurant, will cost $5,900,000 to construct. An estimated additional $100,000 will be invested in the business as working capital. Of the total investment, $4,500,000 is to be secured from the Fleet Bank at a rate of 10% interest and the remainder will be equity provided by the owners. The projected occupancy rate is 68% for the year. The owners desire a 15% return on equity after the corporation pays income taxes of 25%. The estimated depreciation expenses for the first year of operation are $100,000. The estimated undistributed expenses, not including income taxes and interest expense, are $805,400. The estimated direct expenses of the rooms department are $20 for each room sold. Consider a year to have 365 days. Q1. What is the required net income?
Q2. What are the estimated annual interest costs?
Q3. What is the estimated EBITDA (Earnings before Interest, Taxes, Depreciation, and
Amortization)?
Q4. What is the average price of a room using the Hubbart Formula, assuming the
contribution from the restaurant department is $0 (Round up to the nearest quarter)?