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Analyzing the financial aspects of planning a hotel

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Bangalore

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Shaharu B.
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  1. Introduction to hotel industry
    1. Hotel industry and tourism
    2. Contribution to foreign exchange
    3. A home away from home
  2. Hotel industry and employment
  3. Introduction to tourism
  4. Categorisation of hotels
  5. Demand quantification
  6. Technical details of proposed project
    1. Accommodation
  7. Recommended market mix
    1. Shopping arcade
    2. Business centre
    3. Lockers
    4. Car parking
    5. Public phone
    6. Lounge
  8. Introduction to financial aspects of the project
    1. Introduction
    2. Points to be considered when evaluating investment
  9. Evaluating the capital required
    1. Capital
    2. Sources of capital
    3. Types of organizations
    4. Capital requirement for hotel
    5. Land and building
    6. Plant and machinery
    7. Furniture and fixtures
    8. Miscellaneous fixed assets
    9. Working capital
    10. Evaluating investment
    11. Profitability statement
  10. Conclusion

The hotel industry plays a very significant role in the development of tourism in a country. Almost 50% of the foreign exchange from tourism comes from the hotel industry. It has been rightly said, "No hotels, No Tourism". This statement basically exemplifies the fact that if there is no hotels then the tourism industry would suffer a great deal and vice versa therefore it can be said that the hotel industry is the most important segment of the tourist infrastructure. Hotels make major contributions towards tourist trade and enterprises. The expansion of tourism inevitably leads to the development of the hotel industry and this is especially true in developing economies across the world.

The hotel industry is a creator of employment opportunities. The employment impact of the hotel industry is felt all over the economy of a nation. Though, the hotel industry is capital in nature, being a service industry it is also labor intensive.

[...] Purchase of land and building with equity funds may increase the cash flow operation, but requires a substantial investment Plant & Machinery More investment is needed for the plant and machinery like the plant, generators, elevators, electricity, kitchen equipment, etc and an investment will be needed for their installation Furniture & Fixtures It is also the cost of furnishing the insides of the hotel and is estimated on the basis of square feet. The cost depends on how elaborate the decor is Miscellaneous Fixed Assets It includes cost of things like chinaware, linen, glassware, silverware, and chandeliers etc., all this comes under par stock. [...]


[...] But the real boom in hotel building came in the early twentieth century. This period saw the beginning of chain operations under the guidance of E.M Statler. It involved big investments, big profits and trained professionals to manage the business. The depression in 1930 had a disastrous effect on the hotel industry. It was felt that the hotel would never recover but the outbreak of World War II brought a tremendous upsurge. This prosperity continued through the years into the fifties when two new concepts emerged. These concepts were: 1. Motels 2. [...]


[...] Let ?O' be the occupancy of the hotel surveyed then, WAO = N1xO1 +N2xO2 + N3 x O3 + N4 x O4 + N5 x O5 N = 90 x 80% + 60 x 75% + 60 x 70% + 55x10% + 50 x = 7200% + 4500% + 4200% + 4400% + = = 73.96 Therefore weighted average occupancy = Estimated demand supply gap Let Y be the demand supply Y = BEP) x N 100 Where W = Waited average occupancy BEP = Break even point N = Total number of rooms Y = ( - x 315 = 18.96 x = = Therefore demand supply is 59.7 Maximum number of rooms Y x 100 = x BEP Where Y = demand supply gap BEP - Break even point = Demand supply gap x 100 Break even point = 59.72 x = 108.5 Based on this final conclusion, it is profitable to start a four star hotel with 108 rooms. [...]

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