prepare the pro forma income statements for each of the first five years:
|
Year |
Average Room Rate |
Occupancy (%) |
|
1 |
$30.00 |
70 |
|
2 |
$30.00 |
75 |
|
3 |
$33.00 |
75 |
|
4 |
$35.00 |
75 |
|
5 |
$35.00 |
80 |
Rooms operating costs average 60 percent of total room revenue. Indirect expenses will be $40,000 in year 1 and will increase by $4,000 a year for each of the next four years. The preopening interest and other expenses total $100,000 and will be amortized equally over each of the first five years. Income tax, if any, will be 25 percent of earnings before income tax. Note, however, that if there are any losses, they may be carried forward and deducted from earnings before income tax, before the 25 percent tax rate is applied. (Round all calculated figures to the nearest $1,000.)