A) suppose that hotel managers are authorized to increase the average discount g

Question

A) suppose that hotel managers are authorized to increase the average discount given per room to $50; this results in an increased occupancy rate of 62%. what would the resulting ROIC be?

B) as a cost cutting measure, the number of employees for each hotel is reduced from 58 to 53. however, the resulting loss of quality causes a decreased occupancy rate of 55%. what would the resulting ROIC be?

C) an increase is made to the marketing budget of each hotel, such that the operating cost of each hotel increases to $1,100,000. This results in an increased occupancy of 65%. What would the resulting ROIC be?

Explanation / Answer

A)

If discount given per room increases $50, resulting in increased occupancy rate of 62%

Rooms -150 per hotel therefore for 10 hotel there are 1500 Rooms

Rate after discount = $150 per night

Occupancy rate = 62%

Therefore Total Revenue = 1500 rooms * $150 per night * 62% * 365 days = $50917500

Return = $50917500-$39000000 = $11917500

ROIC = ($11917500/$650000000)*100 = 1.83%

B)

Decrease Occupancy rate resulting in decrease in Revenue = 1500 Rooms * $170 per night * 55% * 365 days = $51191250

Decease in Number of employees resulting in decrease in cost = (55 employees per hotel * 10 hotel * 50000 per employee) + ($1 million material per hotel * 10 hotel) = $37500000

Return = ($51191250 - $37500000) = $13691250

ROIC = ($13691250/650000000)*100 = 2.11%

C)

Increase Occupancy rate resulting in increased revenue = 1500 Rooms * $170 per room * 65% * 365 days = $60498750

Increase in Cost = (58 employees per hotel * 50000 per employee * 10 hotel) + ($1100000 * 10 hotels) = $40000000

Return = $60498750 - $40000000 = $20498750

ROIC = ($20498750/$650000000)*100 = 3.15%

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