Serbal Trading Co.

Feasibility Study
For 5 Star Hotel

Planning & Development Dept.

2/6/2011
 INDEX

Page No.
Chapter 1 INTRODUCTION …………………………………………. 3
Chapter 2 PROJECT DESIGN ……………………………………… 5
Chapter 3 INFORMATION ABOUT THE PLACE …………………. 6
Chapter 4 DEMAND QUANTIFICATION…………………………… 7
Chapter 5 TECHNICAL DETAILS OF THE PROPOSED HOTEL.. 8
Chapter 6 RECOMMENDED MARKETING MIX ………………….. 9
Chapter 7 MARKET FEASIBILITY …………………………………. 12
Chapter 8 FINANCIAL VIABILITY ………………………………….. 13
Chapter 9 COST OF PROJECT ……………………………………. 15
Chapter 10 ESTIMATION OF INCOME OF 5 YEARS …………….. 16
Chapter 11 ESTIMATION OF EXPENSE FOR 5 YEARS …………. 18
Chapter 12 BREAK EVEN POINT ANALYSIS ……………………… 20
Chapter 13 NET CACH FOLW ……………………………………….. 25
Chapter 14 SENSITIVITY RATIO ……………………………………. 26
Chapter 15 COST BENEFIT ANALYSIS ……………………………. 27
Chapter 16 BIBLIOGRAPHY …………………………………………. 28
ANNEXURES I PROJECT COST ………………………………………… 29
ANNEXURES II FORMULAS ………………………………………………. 35
ANNEXURES III NETWORK ANALYSIS ………………………………….. 36
 CHAPTER -1

INTRODUCTION

TOURISM
“Tourism” is the totality of the relationship and phenomenon arising from travel and stay strangers the stay does not
imply the establishment of a residence and connected with remunerated activity.

IMPORTANCE OF TOURISM
In creating better appreciation of other people’s ways of the life and institution, tourism may create good will for a
country. Each year many tourist travel to participate in particular events their visits also afford opportunities to
improve co-operation as well as project the correct image of a country to the outside world.

Politics, society, education, and culture thus often provide motivations for tourist to travel away from home, they
influence tourism and tourism in turn has an influence on them. These factors also help explain participation in
tourism generally as we have seen. An evaluation of the significance of tourism may be extending to such aspects as
organized sport and religion.

The main economic significance of tourism-that money earned in places of normal residence is spent in places
visited-is common to all tourism, whether domestic or international. Each year vast sums are transferred from the
economy from whom it is earned, to economies in receiving areas where they provide a source of income, a means
of livelihood, and amenities for the resident population.

The outstanding economic effect of tourism lies in the purchasing to spend at a much bigger rate than when they are
at home. The flow of money generated by tourist expenditure finds its way into the overall economy of the tourist
destination, as the money is turned over and re-spent. But international tourist expenditure introduces an additional
aspect of economic significance, as countries, which have separate political and economic entities, have to balance
their transactions with the rest of the world.

International tourism, therefore, enters into the balance of payments accounts of individual countries and ease of
major significance in international trade. For countries, which generate tourist traffic, it represents an import, in much
the same way, as the import of merchandise. Globally tourism countries are a major item in world trade, which
has shown a much faster rate of growth in recent years than trade in goods.

Tourism is evaluated mainly in terms of its economic significance, but reference is made also to its role as source of
other, less quantifiable, benefits and to some of the problems which tourism presents to individual destinations.
When traveling away from home, tourists come in contact with places they visit and with their inhabitance, and so
social exchanges take place. Their presence and their social background affects the social structure and mode of life
at the destination. Tourists are in turn affected by the experiences and often carry back home with them new habits
and new outlook on life.

Tourism has an educational significance. In the wider sense it has the altogether beneficial effect which contact
between people of different races and nationalities can bring about. In a narrow sense much tourist activity takes the
form of study trips and attendance at courses and conferences with specified educational aims in view.

Tourism is often accompanied by cultural exchange and by cultural enrichment of those who travel as well as those at
the receiving end. The cultural factors that may attract tourists to a particular destination are architecture, historical
monuments and birthplaces of famous people. These are some of the places most visited by the tourists. Festivals
and exhibition rely heavily to visitor traffic as their audience.

Tourism can be classified into:

1. Recreational purposes. Such tourists spots are usually hill stations, beaches etc, such tourists like to get
away from the daily grind of life and freshen themselves.

2. CULTURAL TOURISM: Such type of tourist satisfies the cultural curiosity of the tourist. Such tourist spots
include ancient monuments, places of historical and religious importance etc.
 3. ADVENTURE/SPORTS: This type of tourism is very particular with the youth. This type provides people to
have adventure like diving, skiing, rafting etc.

4. HEALTH: Such type of tourism takes people to places of recovery like places with curative possibilities.

5. CONVENTION/EDUCATIONAL: Tourism such as these is meant for organizing conventions for political,
cultural or academic reasons.

Tourism can also be classified on basis of region:

1. Domestic: Domestic tourism is for tourists belonging to their own country and do not require any papers or
documentation for travel.

2. International: Such type of tourism refers top traveling to other countries other than their own and with
different political and economic systems. This requires documents such as visa,
passports, etc. , to cross the borders.
 CHAPTER -2

PROJECT DESIGN

AIM:

To reveal the market feasibility and financial viability of the proposed hotel

OBJECTIVES:

Some of the main objectives of the study of the project are:

A. To determine the marketing feasibility & Financial Viability of a proposed hotel in Ar Rass

B. To estimate the cost of project.

C. To estimate the total expected revenue from the various departments of the proposed hotel.

D. To calculate the profitability ratios and capital pay back period of the proposed hotel.

E. Determine the profitability analysis.

F. To find the break-even point and expected return on investment.

METHODOLOGY:

The information for this project has been collected through the following procedures:

1. Primary Data: Some of the primary data, which are collected for the study of this project, were collected from
government officials of respected departments. The data, which was collected during the survey through
investigation with hospitality officials.

2. Secondary Data: Various data were used from journals, books and various supplementary copies of news and
other magazines and from the Internet has helped us in gathering information.

LIMITATIONS:

1. Calculation made in the project is based on assumption, approximation and subject to change.

2. Getting exact financial figures was not possible.

 CHAPTER -3

INFORMATION ABOUT THE PLACE

Ar Rass

Is a Saudi Arabian town, located in the Al Qassim Province. It lies southwest of Buraydah, the capital of the province

and also north of Riyadh, the national capital.

It is the third largest city in Al Qassim Province by population, with an estimated population of 133,000. It has an area

of about 60 km². Rass means "an old well" in Arabic, and it was mentioned in a poem of Hassan Bin Thabit, the poet

who was a companion (Sahaba) of the Prophet Muhammad

The city is governed by the Al Assaf family. The city has 19 official sub-governorates, and is surrounded by around

two hundred villages, and Bedouin settlements, mainly on its southern and western sides.

Location

Ar Rass is located in Al Qassim Province, central Saudi Arabia. It is almost 400 km north of Riyadh, 50 km west

of Unaizah, and about 80 km southwest of Buraydah, the regional capital. The city lies to the south of Al Khabra, to

the west of Badaya'a, to the east of Qasr Bin Okayel, and to the north of Dakhnah

Geography

Ar Rass has a typical Nejdi land, with sand dunes surrounding the town's sides, except for the western and southern

sides, which are occupied by Bedouin settlements. The Wadi Al Rumma (Rumma Valley) crosses the city from its

southern side to its northeastern side. There are several medium-height plateaus, and low-height Mountains

surrounding the town, mainly on the southern side, which are called "Jebel Algoshie" by locals

Climate
The town of Rass has a typical desert climate, known for its cold winters and hot and aneroid summers, with low
humidity. The average temperature during winter is between 8° and 21°C. June, July, August, and September are the
hottest months. In summers the degree could reach extreme levels (between 39° to 49°).

People of Rass

The inhabitants of Al Rass are distinguished for their high literacy rate compared to other Al Qassim cites and Saudi
Arabia in general (excluding Al Riyadh, Jeddah, and Dammam).
 CHAPTER -4

DEMAND QUANTIFICATION

Demand quantification is a part of Market research and broadly includes:

a. Determining the size of both current and potent

b. Accessing Market trends
c. Demand & sales forecasting

Ar Rass has no 5 star hotels that mean the (ABAK) hotel will be the first hotel in the city, the nearest 5 star hotel to
ABAK hotel is RAMADA hotel located in Al-Bukairiyah city with 69 rooms.

Hotel and Facilities

Al-Bukairiyah RAMADA Hotel is a nearest hotel to the ABAK hotel location, it will be the start point of our study

Hotel Name No. of rooms Total Products

RAMADA Al-Bukairiyah 69 24,840

Occupancy %*
Winter 10
Spring 10
Summer 50
Autumn 10
Average Occupancy % 20

Comparison between Ar Rass and Al-Bukairiyah

Al-Bukairiyah Ar Rass
Size 20 km² 60 km²
Population 40,000 133,000
 CHAPTER -5
TECHNICAL DETAILS OF THE PROPOSED HOTEL

PROFILE OF THE PROPOSED HOTEL

Suggested Name ABAK

Star category 5 STAR
Number of rooms 90
Address Ar Rass, Qassim
Type Private ownership
Facilities offered Ballroom, Restaurant, Accommodation, Health center, Shops, Laundry, Business
Center
Finance %100 by owner
Manpower 118

About ABAK Hotel

The hotel features large and comfortable range from rooms, suite to the pent house suites. with elegant and

antique furniture. The modern business traveler will appreciate quit environment with large working desks with high

tech portable telephone, multiple plugs and flat TV screen. The themed suites are decorated to reflect the

atmosphere of the Arab nobility.

TARIFF

Single room 400 SR

Double room 500 SR
Suite 800 SR
Large suite 1100 SR

AMENITIES

Air conditioned room Airport transfers

Audio visual equipped Car parking
Baby care Doctor on call
Business center Fax service
Fire safeguards Laundry facilities
Photocopy services Power back-up
Restaurant Safe deposit
Travel desk Cable TV

·
 CHAPTER -6

RECOMMENDED MARKETING MIX

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of

ideas, goods and services to create exchanges that satisfy individual and organizational objectives. The marketing

mix refers to the appointment of the effort, the combination, the design and integration of elements of marketing in to

a program, which is on the basis of an appraisals of the marketing forces, will vest achieve the objective of an

enterprise of a given time.

MARKETING MIX:

In common parlance, marketing is the process of selling something at a shop or market place. A market is

regarded as a single or an aggregated or relationship between consumers and producers who are separated by place

and time and have a potential to strike an exchange of goods and services. Marketing is concerned with business

and the functions, product planning, pricing, selling and advertising.

When the functions mentioned above are interlocked in a planned and systematic manner to attain a given objective.

They merge their identity in what is called the marketing mix in short; it just means the mixing of marketing

ingredients, which are also popularly known as the four P’s viz.

Adequate advertising, sales, promotion and personnel selling to create interest and design for the product among

customers for the proposed hotel can be based upon the concept of the customer segment aimed at promote the

market strategy.

The four basic aspect of marketing are:

 Place

 Product

 Price

 Promotion

An optional marketing mix, hence involves from a creative blinding of ingredients or elements, so that the

product or services is offered to the market under the conditions most favorable to the attainment of marketing

objectives.
PLACE:

The place can define as “The aggregate of forces or conditions within which buyers and sellers make

decision that result in the transfer of goods can be segmented geographically into:

 Region or place

 Climate

In the geographic base, regional differences in terms of topography, climate, population and its density, from

the base for market segmentation and differentiated marketing effort. Choosing the right location is an important

and vital decision for any hospitality business. Certain factors have to be taken into account to decide the right

place.

 Al-Madinah Highway is just 7 KM from ABAK Hotel location

 Maccah al Batra highway is just 15 km from ABAK Hotel location

 Buridah airport is just 70 KM from ABAK Hotel location

 Easy accessibility to downtown area

PRODUCT:

A product is a bundle of utilities and accompanying services. The ABAK 5 star hotel would be a Tow-floor

building facilities in chapter 5.

The important features of the hotel are that it will have 20 Single Rooms, 20Double Rooms, 50 Suite rooms

The hotel will have a Multi-cuisine restaurant with 36 covers, and . The hotel and staff will be at their best

services to their customers

PROMOTION:

To make the product and price known and acceptable to the target customers, it is essential to

communicate, persuade and motivate them. Promotion can be effected through:

 Personal Selling

 Advertisement

 Sales Promotion

 Public Relation
 PERSONAL SELLING:

The hotels sales persons, who are on its customers relations so as to make an offer of sale to

motivate them to positively respond to it and finally clinch the deals

ADVERTISING:

Advertisement could be referred to as the use of mass communication media to influence existing or

potential through newspaper, T V ads. Etc. Advertisements will have positive effects such as:

 It will help to raise awareness about the company.

 Create favorable image and confidence of company.

The various elements of advertising are joint media, RADIO ADVERTISING AND OUT DOOR ADVERTISERS

PRINT MEDIA:

Newspaper and magazine have a great effect on influencing the people. An alternative advertisement given

in the newspaper or magazine will influence the people. Such advertisements are already targeted at particular

market segment; there is a large reading audience.

OUT DOOR ADVERTISEMENT:

This type of advertisements covers large number of people with low expensive. The sales can also be

promoted by giving discounts to the regular customer. As the proposed hotel is mostly targeting on air travelers,

Highway travelers, it is suggested to have an airport facilitator to guide to gust and even canvas people for the

hotel. The hotel will provide pick up and drop to guest from the airport, and also will have tips with air lines for the

staff and customers in cause of stop over and delay of flight etc.

The pricing strategy will naturally depend on what the proposed hotel offering, the facilities available in the

hotel etc. Another factor to be considered when pricing of rooms and out lets are low is to compare it with the

competitions. It should be less that of the competitions.

 CHAPTER -7

MARKET FEASIBILITY

The market survey conducted at Al-Bukairiyah revealed good scope for the establishment of a 5 star hotel.

The conclusions regarding the viability of 5 star hotels in Ar Rass are more than promising. This place occupies a

unique position in in the middle and heart of the Kingdom of Saudi Arabia, Various factors have made Ar Rass

wonderful place to visit to enjoy the quiet and silence and get relaxation after previous hard working and cities

noisy and stress.

There will be qualified trained efficient and courteous staff properly groomed. The aim would be to provide

the best possible service to the guest and for the tie up keep of the hotel. The promotion advertisements will be

through print media and outdoor. An attractive brochure would be given along with it. The proposed hotel has a

great potential to capture a large share of the developing market.

The proposed hotel can expect a good occupancy. Considering the entire favorable factor it is concluded

that a 5 star hotel is easily and scope for marketing the hospitality product is excellent.
 CHAPTER -8

FINANCIAL VIABILITY

INTRODUCTION TO FINANCIAL ASPECTS OF THE PROJECT

The financial viability means to find out whether it is financially viable to star or 5 stars hotel as this project

reports is based on 5 star hotel in simpler words financial viability is to find out starting a 5 star hotel is financial

successful or not.

The financial planning includes the selection of objectives and selection of policies, programmers and

procedures to achieve the objectives. The various considerations relating to the present capital need,

requirement of investors and possibilities of expansion resolve themselves into a present determination of:

A. The amount of capital to be raised.

C. Policies as to administration of capital.

It is not too much to emphasize the correct estimate of the present and future needs of a

Capital structure and proper projection of capital will lead to success to the company.

PROJECT AT GLANCE

 Total land Area = 25,000 M2

 Total Built up Area = 15,000 M2

 Type of hotel = Business Hotel

 Location = Ar Rass, Qassim, Saudi Arabia

 Name of the hotel = ABAK

 No – of guest room = 90 Rooms

FACILITIES PROVIDED BY THE PROPOSED HOTEL

 Cuisine Restaurant 25 covers

 Banquet/ Conference Hall 200 covers
 Service Rooms
 Airport transfers
 Audio visual equipped
 Baby care
 Business center
 Cable TV
 Car parking
 Doctor on call
 Fax service
 Fire safeguards
 Laundry facilities
 Photocopy services
 Power back-up
 Restaurant
 Safe deposit
 Travel desk
 CHAPTER -9

COST OF PROJECT

Cost of Land 15,000,000

Development and soft costs 2,500,000
Preliminary POP expenses 1,200,000
Site improvement and building construction 21,000,000
FF&E 4,800,000
Miscellaneous fixed assets 1,200,000
Initial cost 45,700,000
Margin for contingency (%5) 2,285,000
Total cost 46,725,000

MEANS OF FINANCE

Owners capital (100 % of project) = 46,725,000, No Bank or loan will share the capital
 CHAPTER -10

ESTIMATION OF INCOME OF 5 YEARS

Total rooms 90
Days 360
Total products 32400

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
% of occupancy 20% 30% 35% 45% 60%
Products 6480 9720 11340 14580 19440
Average room tariff 700 700 750 750 800
Total rooms sales 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000

Total Ballroom 1
Days 360
Total products 360

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
% of occupancy 40% 60% 70% 75% 80%
Products 144 216 252 270 288
Ballroom tariff 18000 20000 22000 24000 26000
Total sales 2,592,000 4,320,000 5,544,000 6,480,000 7,488,000

Food & Beverage

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Rooms & restaurant
907,200 1,814,400 2,430,000 3,402,000 4,665,600
and coffee shop
Ballroom 2,592,000 4,320,000 5,544,000 6,480,000 7,488,000
Total F & B 3,499,200 6,134,400 7,974,000 9,882,000 12,153,600

Others (3Shops) , Laundry, Tel. and business service

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Total shop income 30,000 36,000 36,000 42,000 42,000
Laundry 1500 1600 1700 1700 1800
Tel. 4000 4000 5000 6000 7000
Total 45500 53600 54700 63700 64800
Health Club

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
No. of subscription 40 60 100 150 250
Yearly subscription 3,000 3,500 3,500 4,000 4,000
Total revenue 120,000 210,000 350,000 600,000 1,000,000

Total Revenue

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Rooms 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000
Food and Beverage 4,406,400 7,041,600 8,946,000 10,854,000 13,708,800
Others (Shops, Laundry, Tel.
45,500 53,600 54,700 63,700 64,800
and business service)
Health Club 120,000 210,000 350,000 600,000 1,000,000
Total revenue 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600
 CHAPTER -11

OPERATIONAL EXPENSES
ESTIMATION OF EXPENSE FOR 5 YEARS

1st Year 2nd Year 3rd Year 4th Year 5th Year
Cost of F & B (40% of F & B sales) 725,760 1,088,640 1,360,800 1,749,600 2,488,320
Electricity (5% of total sales) 455,395 705,460 892,785 1,122,635 1,516,280
Salaries and wages 300,000 300,000 300,000 300,000 300,000
Admin & management expenses (5% of sales) 455,395 705,460 892,785 1,122,635 1,516,280
Advertisement and publicity (15% of total
sales)
1,366,185 2,116,380 2,678,355 3,367,905 4,548,840
Franchise cost 1,366,185 2,116,380 2,678,355 3,367,905 4,548,840
Insurance and legal charges (5% of sales) 455,395 705,460 892,785 1,122,635 1,516,280
Miscellaneous expenses (4% of total sales) 364,316 564,368 714,228 898,108 1,213,024
Zakat 21,787 33,116 116,124 159,784 238,198
5,488,631 8,302,148 10,410,093 13,051,423 17,647,864

Depreciation fees

Amount Item 1st Year 2nd Year 3rd Year 4th Year 5th year
21,000,000 Building 10% 2,100,000 1,890,000 1,701,000 1,530,900 1,377,810
4,800,000 FF&E 25% 480,000 432,000 388,800 349,920 314,928
1,200,000 Miscellaneous fixed assets 120,000 108000 97,200 87,480 78,732
Total Depreciation 2,700,000 2,430,000 2,187,000 1,968,300 1,771,470

Franchise fees

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Total revenue 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600
Franchise fee % 15% 15% 15% 15% 15%
Franchise fee 1,366,185 2,116,380 2,678,355 3,367,905 4,548,840

Interest on BOD fees

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Total Investment 46,725,000 46,725,000 46,725,000 46,725,000 46,725,000
Interest of BOD % 4% 4% 4% 4% 4%
Interest of BOD 1,869,000 1,869,000 1,869,000 1,869,000 1,869,000
 Total Fees

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Depreciation fees 2,700,000 2,430,000 2,187,000 1,968,300 1,771,470
Franchise fees 1,366,185 2,116,380 2,678,355 3,367,905 4,548,840
Interest of BOD fees 1,869,000 1,869,000 1,869,000 1,869,000 1,869,000
Total fees 5,935,185 6,415,380 6,734,355 7,205,205 8,189,310

GROSS OPERATIONAL PROFIT

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Total revenue 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600
Total Expenses 5,488,631 8,302,148 10,410,093 13,051,423 17,647,864
Gross Operational Profit 3,619,269 5,807,052 7,445,607 9,401,277 12,677,736

PROFITABILITY STATEMENT

S No. Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
1 Gross Operational Profit 3,619,269 5,807,052 7,445,607 9,401,277 12,677,736
2 Interest in BOD 1,869,000 1,869,000 1,869,000 1,869,000 1,869,000
3 Depreciation 2,700,000 2,430,000 2,187,000 1,968,300 1,771,470
4 Profit before Zakat -949,731 1,508,052 3,389,607 5,563,977 9,037,266
5 Zakat 21,787 33,116 116,124 159,784 238,198
6 Profit After Zakat -971,518 1,474,936 3,273,483 5,404,193 8,799,068
6 Available surplus (Available Cash) 1,728,482 3,904,936 5,460,483 7,372,493 10,570,538
14,000,000

12,000,000

10,000,000
Gross Operational Profit
8,000,000
Profit After Zakat
6,000,000

4,000,000 Available surplus

(Available Cash)
2,000,000

0
1 2 3 4 5
-2,000,000
 CHAPTER -12

Break Even Point Analysis

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Rooms Sales 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000

Fixed Cost Salary %55 165,000 165,000 165,000 165,000 165,000

Power %15 68,309 105,819 133,918 168,395 227,442
Insurance and legal charges %55 250,467 388,003 491,032 617,449 833,954
Depreciation 55% 1,485,000 1,336,500 1,202,850 1,082,565 974,309
Franchise fees 751,402 1,164,009 1,473,095 1,852,348 2,501,862
Interest of BOD 55% 1,027,950 1,027,950 1,027,950 1,027,950 1,027,950
Total Fixed Expenses 3,748,128 4,187,281 4,493,845 4,913,707 5,730,517

Variable Cost Power %25 113,849 176,365 223,196 280,659 379,070

Admin & management expenses
250,467 388,003 491,032 617,449 833,954
55%
Advertisement and publicity 55% 751,402 1,164,009 1,473,095 1,852,348 2,501,862
Miscellaneous expenses 55% 200,374 310,402 392,825 493,959 667,163
Total Variable Expenses 1,316,092 2,038,779 2,580,149 3,244,415 4,382,049

Total Cost 5,064,220 6,226,060 7,073,993 8,158,122 10,112,566

Income from operation -528,220 577,940 1,431,007 2,776,878 5,439,434

Zakat 23,920 47,861 65,846 96,486 160,344
Profit after Zakat -552,139 530,079 1,365,160 2,680,392 5,279,091
Contribution Margin 70.99% 70.04% 69.66% 70.33% 71.82%
Break-Even Sales Volume 5,280,122 5,978,791 6,450,820 6,986,645 7,978,638
Sales Volume Above Break-Even -744,122 825,209 2,054,180 3,948,355 7,573,362
Income from Operations Room Available 32,850 32,850 32,850 32,850 32,850
Analysis Room Sold 6,570 9,855 11,498 14,783 19,710
Room Occupancy 20% 30% 35% 45% 60%
Average Room Rate 690 690 740 740 789
REV.PAR 138 207 259 333 473
 Rooms Break-Even Point
18,000,000

16,000,000

14,000,000

12,000,000
Amount

10,000,000

8,000,000

6,000,000

4,000,000

2,000,000

0
1 2 3 4 5
Rooms Sales 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000
Total Fixed Expenses 3,748,128 4,187,281 4,493,845 4,913,707 5,730,517
Total Cost 5,064,220 6,226,060 7,073,993 8,158,122 10,112,566
 Food and Beverage Break Even Point Analysis

Item 1st Year 2nd Year 3rd Year 4th Year 5th Year
Food and beverage 4,406,400 7,041,600 8,946,000 10,854,000 13,708,800

Salary %45 135,000 135,000 135,000 135,000 135,000

Franchise fees 614,783 952,371 1,205,260 1,515,557 2,046,978
Fixed Depreciation 45% 1,215,000 1,093,500 984,150 885,735 797,162
Interest of BOD 45% 841,050 1,027,950 1,027,950 1,027,950 1,027,950
Power %10 45,540 70,546 89,279 112,264 151,628
Insurance and legal charges %25 113,849 176,365 223,196 280,659 379,070

Total Fixed Expenses 2,965,222 3,455,732 3,664,835 3,957,165 4,537,788

Variable Cost of F & B (25% of F & B sales) 1,101,600 1,760,400 2,236,500 2,713,500 3,427,200
Power %25 113,849 176,365 223,196 280,659 379,070
Admin & management expenses 136,619 211,638 267,836 336,791 454,884
30%
Advertisement and publicity 25% 341,546 952,371 1,205,260 1,515,557 2,046,978
Miscellaneous expenses25% 91,079 253,966 321,403 404,149 545,861
Total Variable Expenses 1,784,693 3,354,740 4,254,194 5,250,655 6,853,993

Total Cost 4,749,914 6,810,472 7,919,029 9,207,820 11,391,780

Income from operation -343,514 231,128 1,026,971 1,646,180 2,317,020
Zakat 21,787 33,116 50,278 63,298 77,855

Income from Operations Contribution Margin 59.50% 52.36% 52.45% 51.62% 50.00%
Analysis Break-Even Sales Volume 4,983,757 6,600,164 6,987,844 7,665,254 9,075,036
Sales Volume Above Break-Even -577,357 441,436 1,958,156 3,188,746 4,633,764
 Food & Beverage Break-Even Point
16,000,000

14,000,000

12,000,000

10,000,000
Amount

8,000,000

6,000,000

4,000,000

2,000,000

0
1 2 3 4 5
Food and beverage 4,406,400 7,041,600 8,946,000 10,854,000 13,708,800
Total Fixed Expenses 2,965,222 3,455,732 3,664,835 3,957,165 4,537,788
Total Cost 4,749,914 6,810,472 7,919,029 9,207,820 11,391,780
 1st Year 2nd Year 3rd Year 4th Year 5th Year
Total income 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600

Total Fixed Cost 6,713,350 7,643,013 8,158,679 8,870,872 10,268,304

Total Variable Cost 3,100,784 5,393,519 6,834,343 8,495,070 11,236,042
Total cost 9,814,134 13,036,532 14,993,022 17,365,942 21,504,346

Break-Even Point
13,036,532
35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0
1st Year 2nd Year 3rd Year 4th Year 5th Year
Total income 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600
Total Fixd Cost 6,713,350 7,643,013 8,158,679 8,870,872 10,268,304
Total cost 9,814,134 13,036,532 14,993,022 17,365,942 21,504,346

Break Even Point @

Revenue: - 13,036,532 with occupancy: - 18%
 CHAPTER- 13

Net Cash Flow

1st Year 2nd Year 3rd Year 4th Year 5th Year
Gross Profit 3,619,269 5,807,052 7,445,607 9,401,277 12,677,736
Depreciation 2,700,000 2,430,000 2,187,000 1,968,300 1,771,470
Preliminary POP expenses 1,200,000 1,200,000 1,200,000 1,200,000 1,200,000
Net Cash Flow 7,519,269 9,437,052 10,832,607 12,569,577 15,649,206

R.O.I (RETURN ON INVESTMENT)

1st Year 2nd Year 3rd Year 4th Year 5th Year
R.O.I Ratio 16.09 20.20 23.18 26.90 33.49

Average R.O.I = 23.97

R.O.I Ratio
40.00
35.00
30.00
25.00
20.00
R.O.I Ratio
15.00
10.00
5.00
0.00
1st Year 2nd Year 3rd Year 4th Year 5th Year
 CHAPTER- 14

SENSITIVITY RATIO

Sensitivity to income change

1st Year 2nd Year 3rd Year 4th Year 5th Year
Total Income 9,107,900 14,109,200 17,855,700 22,452,700 30,325,600
Occupancy 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000
2.01 2.07 2.10 2.05 1.95

Sensitivity to expense change

1st Year 2nd Year 3rd Year 4th Year 5th Year
Total expense 5,488,631 8,302,148 10,410,093 13,051,423 17,647,864
Occupancy 4,536,000 6,804,000 8,505,000 10,935,000 15,552,000
1.21 1.22 1.22 1.19 1.13

Sensitivity ratio 1.66 1.70 1.72 1.72 1.72

 CHAPTER- 15

COST BENEFIT ANALYSIS

Total cost of project 46,725,000

5 Years Revenue 93,851,100
5 years expenses 54,900,159

Profit 38,950,941

Capital intensity 1.20

CONCLUSION

The project on financial viability was completed Ar Rass city, Qassim province. A market survey conducted before the
commencement of the project shows that there is good demand for the products of hospitality industry in Ar Rass,
which is the Third city Qassim province through size.

Total cost of project is SR. 46,725,000 and has 90 rooms. The occupancy forecasted for a period of 5 consecutive
years from commencement of operations is taken into account as – 10%, 20%, 25%, 35% and 45%.

Statistical data of the project may be summed as follows

Average return on investment: 20.82

Break-even point: SR 13,185,102

After studying the above aspect and estimation of profitably statement and other financial Status it has been
concluded that 5 star hotel with 90 rooms in Ar Rass viable.
 CHAPTER -16

BIBLIOGRAPHY

S. No. Titles Authors

1 Perspectives on Indian hotel industry Pushpinder S.Gill

2 Hotel Economics P.M. Mathew
3 Hospitality Management T. Philip
4 Project Analysis G. Phyler
5 Hotel Accountancy T. Ryder

WEBSITES
www.answers.com
www.hoteliercaterer.com
 ANNEXURES I

Cost of land = Land required in sq. m x Rate per sq. m

= 25,000 x 600 = SR15,000,000

Cost of Building = (Total land space x %40) x Rate per sq. m+ Site improvement
= 25,000 x %40 x 2,000 + 1,000,000 = SR 21,000,000

Plant and Machinery

Items Amount
Central a/c 1,240,000
Lift 400,000
Generator 300,000
Transformer 240,000
Boiler 120,000
EPBAX 120,000
Exhaust/ vent 24,000
CCTV 80,000
Kitchen equipment 280,000
Water cooler 25,000
Fire fitting 90,000
Computer 80,000
Fax 6,000
Total 3,005,000

GUEST ROOM
Items U. Price QTY Total
Twin bed 375 60 22,500
Double bed 937 60 56,220
Side table 120 120 14,400
Chair 262 90 23,580
Coffee table 333 90 29,970
Cupboard 800 90 72,000
Luggage rack 168 90 15,120
T.V stand 258 90 23,220
Carpets 80 2800 224,000
Mirrors 90 90 8,100
Wash basin 348 90 31,320
Bath tub 750 90 67,500
W/C 180 90 16,200
Upholstery 170 90 15,300
Dressing table 716 90 64,440
Fixtures 340 90 30,600
Total 714,470
FOOD AND BEVERAGE OUTLETS

A- RESTAURANT
Items U. Price QTY Total
Tables 213 25 5,325
Chairs 168 110 18,480
Side station 220 2 440
Decor and upholstery 290,000 1 290,000
Carpets 80 300 24,000
Fixtures 18,000 1 18,000
Total 356,245

B- ROOM SERVICE
Items U. Price QTY Total
B/f Trays 60 20 1,200
Tea Trays 40 20 800
12” Salvers 40 15 600
9” Salvers 35 15 525
Trolleys 296 8 2,368
Racks 160 8 1,280
O.T cabin 212 1 212
Desk 956 1 956
Miscellaneous 5,000
Total 12,941

C- BANQUET
Items U. Price QTY Total
Chairs 240 600 144,000
Tables 333 200 66,600
Carpets 71 80 5,680
Podium 1,811 2 3,622
Décor 60,000 1 60,000
Music system 4,312 2 8,624
12” salver 120 60 7,200
Fixtures 18,000 1 18,000
Total 313,726
 D- STORES, PURCHASE, HOUSEKEEPING
Items U. Price QTY Total
Cupboards 510 4 2,040
Shelves 176 2 352
Racks 37 2 74
Bins 138 3 414
Fixtures 11,000 1 11,000
Total 13,880

E- ADMINISTRATION
Items Price
Tables 6,120
Chairs 4,562
Fixtures 5,150
Total 15,832

F- RECEPTION AND LOBBY

Items Price
Counter 22,000
Stationery 1,000
Pigeon hole 70
Cupboard 1,200
Safe deposit 4,000
Sofa set 8,000
Fixtures 28,600
Luggage carrier 4,000
Miscellaneous 10,000
Total 78,870

G- STAFF CAFETARIA
Items U. Price QTY Total
Tables 333 4 1,332
Chairs 262 12 3,144
Fixtures 4000 1 4,000
Total 8,476

H- FOOD AND BEVERAGE OUTLETS

Items U. Price QTY Total
Table cloth 40 40 1,600
Napkins 30 40 1,200
Total 2,800
 I- BANQUET HALL AND CONFERENCE
Items U. Price QTY Total
Frills 100 200 20,000
Table cloth 40 240 9,600
Napkins 30 240 7,200
Total 36,800

J- GUEST ROOM AND SUITE ROOM LINEN

Items U. Price QTY Total
Single bed sheet 40 120 4,800
Double bed sheet 50 120 6,000
Blankets 80 140 11,200
Blanket cover 20 140 2,800
Mattress 500 120 60,000
Mattress protector 80 120 9,600
Single Bed cover 60 120 7,200
Double Bed cover 80 120 9,600
Hand towel 20 400 8,000
Bath towel 20 400 8,000
Bath mat 20 120 2,400
Pillows 30 200 6,000
Total 135,600

K- KITCHEN STEWARDING (RESTAURANT &ROOM SERVICE)

Items U. Price QTY Total
Glasses 5 800 4,000
Chinaware 10 800 8,000
Flatware 10 800 8,000
Cutlery 18 800 14,400
Miscellaneous 4,000 1 4,000
Total 38,400

L- BANQUETS
Items U. Price QTY Total
Glassware 5 1200 6,000
Chinaware 10 1200 12,000
Flatware 10 1200 12,000
Cutlery 18 1200 21,600
Total 51,600
 M- STAFF CAFETARIA
Items QTY
Plates 1,200
Spoons 300
Forks 300
Total 1,800

N- HOUSE KEEPING MISCELLANEOUS ASSETS

Items U. Price QTY Total
Vacuum cleaner 700 6 4,200
Cleaner mug 2 40 80
Mops 3 60 180
Brooms 3 60 180
Squeezer 2 60 120
Duster 1 200 200
Waiters cloth 4 900 3,600
Miscellaneous 5,000 1 5,000
Total 13,560

O- PRELIMINARY AND PRE-OPERATIVE EXPENSES

Items Price
Salary and wages 300,000
Project fees 50,000
Registration and establishment fees 90,000
Insurance 420,000
Advertisement and publicity 300,000
Deposits
a.) Electricity
b.) Telephone 20,000
c.) Water supply
d.) NSC
Miscellaneous expenses 20,000
Preliminary POP expenses 1,200,000
 P- SALARY AND WAGES

NO.OF TOTAL
DESIGNATION SALARY
PERSON AMOUNT
General manager 1 8,000 8,000
Front office manager 1 5,000 5,000
Lobby manager 1 4,000 4,000
GRE 1 3,000 3,000
Front office assistant 4 2,500 10,000
Travel desk operator 1 2,500 2,500
Bellboys 4 1,300 5,200
Telephone operator 2 1,500 3,000
Bell captain 2 3,000 6,000
Night auditor 1 4,500 4,500
F & B Manager 1 7,000 7,000
Banquet manager 1 7,000 7,000
Restaurant manager 1 7,000 7,000
Captains 2 2,000 4,000
Senior Captain 2 3,000 6,000
Stewards 20 1,800 36,000
Executive chef 1 6,000 6,000
Souse Chef 2 4,000 8,000
Chef de parties 3 6,000 18,000
Steward supervisor 1 4,000 4,000
Dish / pot washer 4 1,300 5,200
Executive house keeper 1 1,600 1,600
Housekeeping supervisor 2 4,000 8,000
Floor supervisor 3 3,000 9,000
Room attendant/house man 10 1,200 12,000
Personal manager 1 6,000 6,000
Sales & marketing manager 1 6,000 6,000
Sales & marketing executive 1 3,000 3,000
Accountant 1 2,500 2,500
Chief accountant 1 4,700 4,700
Cashier 2 2,000 4,000
B. Sales executive 2 3,500 7,000
Desk control supervisor 2 4,000 8,000
Linen attendants 2 2,000 4,000
Laundry attender 2 1,200 2,400
Carpenter 1 1,500 1,500
Plumber 2 1,500 3,000
Hostess 2 1,500 3,000
Personnel office asst. 2 2,000 4,000
Drivers 2 2,000 4,000
Doorman 2 1,200 2,400
Apprentices 4 1,500 6,000
Life guard 2 2,000 4,000
Security manager 1 4,000 4,000
Security guard 4 1,500 6,000
Chief engineering 1 5,000 5,000
Supervisor 2 3,000 6,000
Technicians 2 1,500 3,000
Purchase officer 1 2,500 2,500
Purchase manager 1 4,000 4,000
Stores keeper 2 2,000 4,000
TOTAL 300,000
 ANNEXURES II

Formulas

Average Room Tariff

Single room Tariff + Double room + Suite Tariff + large Suite Tariff
=
4

Rooms Contribution Margin

Total Rooms Sales − Total Variable Expenses

Total Rooms Sales

F&B Contribution Margin

Total F&B Sales − Total Variable Expenses

Total F&B Sales

Break-Even Sales Volume

Total Fixed Expenses

Contribution Margin

REV.PAR

Total Rooms Sales

Available Room

Return on Investment (R.O.I)

Net Cash Flow x 100

Share Capital

Sensitivity ratio

Sensitivity to income change

Sensitivity to expense change
 ANNEXURES III

Network Analysis

S. No. Description Duration

1 Project search 2
2 Purchase of land 0
3 Preparation of feasibility report 1
4 Formation of feasibility report 2
5 Preparation of building plan 2
6 Staff appointment 2
7 Application for power, water 1
8 Project approval 1
9 Building construction 15
10 Plumbing and electrification 6
11 Delivery and installation of machinery 3
12 Recruitment of staff 2
13 Furnishing and interior decoration 5
14 Procurement of material 1
17 Inauguration and commercial operating 3
Total 46