Question

The Shayla Bungalows, a proposed 150-room hotel with a fully equipped restaurant, will cost $5,900,000 to construct. An estimated additional $100,000 will be invested in the business as working capital. Of the total investment, $4,500,000 is to be secured from the Fleet Bank at a rate of 10% interest and the remainder will be equity provided by the owners. The projected occupancy rate is 68% for the year. The owners desire a 15% return on equity after the corporation pays income taxes of 25%. The estimated depreciation expenses for the first year of operation are $100,000. The estimated undistributed expenses, not including income taxes and interest expense, are $805,400. The estimated direct expenses of the rooms department are $20 for each room sold. Consider a year to have 365 days.

What is the required net income?

Answer 1

To calculate the required net income for the Shayla Bungalows, consider the revenue and expenses for the business.

Step-by-step explanation:

To calculate the required net income for the Shayla Bungalows, we need to consider the revenue and expenses for the business. The revenue is based on the projected occupancy rate and the room rate. The total revenue can be calculated as: Total Revenue = (Number of Rooms x Occupancy Rate x Room Rate).

The expenses include depreciation expenses, undistributed expenses, interest expense, and taxes. The net income can be calculated as: Net Income = Total Revenue - Depreciation Expenses - Undistributed Expenses - Interest Expense - Taxes.

By plugging in the given values, we can calculate the required net income for Shayla Bungalows.