Acc05

Posted on February 20, 2017

Accounting Help 05

 

Current Situation
 
There are 3 hotels in town: Best Western, Super 8, and Motel 6. The Best Western has 50 rooms, Super 8 has 58 rooms, and Motel 6 has 45 rooms, which totals 153 rooms. Below are years 2012- 2015 Best Western financial actuals, which include: Total Revenue, ADR (average daily rate), Occupancy%, and rooms sold with Super 8 and Motel 6 competition.
 
Best Western Figures
 
2012 (Year Totals)
50 total Rooms
Total Revenue: $1,112,386
ADR: $82.78
Occupancy%: 71.99%
Rooms Sold: 13,185
 
2013 (Year Totals)
50 Total Rooms
Total Revenue: $1,241,282
ADR: $84.57
Occupancy%: 78.61%
Rooms Sold: 14,353
 
2014 (Year Totals)
50 Total Rooms
Total Revenue: $1,493,339
ADR: $92.39
Occupancy%: 87.98%
Rooms Sold: 15,991
 
2015 (Jan-Oct: 2 months to go)
50 Total Rooms
Total Revenue: $1,302,418 (2 months?to go)
ADR: $96.60 (2 months to go)
Occupancy %: 88.3% (2 months to go)
Rooms Sold: 13, 419 (2 months to go)
 

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New Situation
 
A new hotel is going to be built, adding an additional 55 rooms to the market. The Best Western is going to build on and add an additional 55 rooms to the hotel, which adds 110 additional rooms in the market. I really cannot afford to make a several million-dollar mistake building on and adding 55-rooms if the numbers do not justify it. I really need some deep soul searching to attempt to justify considering a new motel. The new hotel will take 20% of the occupancy in the market.
Please answer the following 3 Questions
 
1. IF we build an additional 55 rooms, along with the new hotels 55 rooms, what will our total revenue, occupancy%, and ADR look like on an annual basis over 3 years, based upon the current trend of the Best Western figures and the new hotel taking 20% of the occupancy away from the exiting hotels in the market?
 
2. It will cost approximately 6-million dollars to build the additional 55 rooms. How many years would it take for the Best Western to break-even with these new conditions and the information arrived from the projections?
 
3. In the final conclusion, based upon the projections and considerations at hand, is building the additional 55-rooms to the Best Western a wise or unwise investment?

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