Hubbart Formula

Problem: Reference : Kasavana Brooks, 5th Edition, Pg. 351
Hubbart Formula Approach, Room Pricing

The Casa Vana Inn, a 200 room property, is projected to cost $9,900,000 inclusive of land, building, equipment, and furniture. An additional $100,000 is needed for working capital, bringing the total cost of construction and opening to $10,000,000. The hotel is financed with a loan of $7,500,000 at 12% annual interest and cash of $2,500,000 provided by the owners. The owners desire a 15% annual return on their investment. A 75% occupancy is estimated; thus, 54,750 rooms will be sold during the year (200 x 0.75 x 365). The income tax rate is 40%. Additional expenses are estimated as follows:
|Property tax expenses |$250,000 |
|Insurance expenses |$ 50,000 |
|Depreciation expenses |$300,000 |
|Administrative & General expenses |$300,000 |
|Data processing expenses |$120,000 |
|Human resources expenses |$ 80,000 |
|Transportation expenses |$ 40,000 |
|Marketing expenses |$200,000 |
|Property operation & maintenance expenses |$200,000 |
|Energy & related expenses