Aberdeen’s Thrifty hotel has forty rooms and has historically achieved an average occupancy of 55%. The hotel’s assets have a book value of Pounds 450,000 and the owners believe the assets should generate a 15% return after tax. Assume tax is charged at t

Based on the given information, the Thrifty hotel in Aberdeen is generating an annual revenue of Pounds 280,000 (40 rooms ? 365 days ? 55% occupancy rate ? Pounds 60 average room rate). To calculate the hotel's after-tax return on assets, we need to determine the required pre-tax return on assets first. This can be calculated as follows: Required pre-tax return on assets = Book value of assets ? Required rate of return = Pounds 450,000 ? 15% = Pounds 67,500 Next, we need to calculate the after-tax return on assets by subtracting the tax expense from the required pre-tax return on assets: After-tax return on assets = Required pre-tax return on assets ? (1 - Tax rate) = Pounds 67,500 ? (1 - 0.5) = Pounds 33,750 To calculate the hotel's net income, we need to deduct all the fixed costs and operating expenses from the total revenue: Net income = Total revenue - Fixed costs - Operating expenses = Pounds 280,000 - (9% ? Pounds 250,000 + Pounds 40,000 + Pounds 65,000) - Pounds 85,000 = Pounds 12,250 Finally, we can calculate the return on assets as a percentage by dividing the net income by the book value of assets: Return on assets = Net income ? Book value of assets ? 100% = Pounds 12,250 ? Pounds 450,000 ? 100% = 2.72% This means that the hotel's current return on assets is lower than the required return of 15% after tax. The hotel needs to either increase its revenue, reduce its costs, or both, in order to achieve the desired return on assets.