Managing Finance
1) critically evaluate the concept of maximising shareholder wealth and competing theories.
2) A consortium has just purchased a hotel at a cost of £40m and has spent an additional £10m on renovation, including furniture.
The hotel has 100 rooms which can be let as singles or doubles.
Annual running costs of the hotel are;
Rates £
Advertising 400,000
Maintenance 300,000
Salaries and wages 59,000
Heat and light 1,500,000
Administration 291,000
Depreciation of the hotel will be over 50 years
Depreciation of the renovations will be over 5 years
The variable costs are:
Breakfast £2 per person per night
Evening meal £6 per person per night
Cleaning and laundry £7 per person per night
The bar
Average selling price per drink £5
Average cost price per drink £1.50
Customers are expected to spend on average £10 per guest night on drinks in the bar.
The bar will employ 3 members of staff each working 8hours per day and being paid at the minimum wage not included in wages and salaries above.
Breakfast and evening meals are included in the room rate. The hotel is budgeting for average occupancy of 7o% which can be made up of single or double occupancy. Th hotel will be open 364 days per year.
Required :
A) what price will the hotel need to charge per guest night to achieve a break even?
B) The consortium has set a target ROCE of 20%. What price per guest night will need to be charged to achieve this figure?
C) Assuming they achieve their ROCE target, what will be the NPV and the IRR of the project over the first ten years? The company WACC is 12%.
D) Evaluate the possibility of the hotel charging £80 per night on Fridays and Saturdays.
E) Advise the management of the hotel how they may generate additional revenue.
Credit:ivythesis.typepad.com
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