# Hubbart Formula

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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

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