The manager of RitzyRooms, a small 40-room Saskatchewan roadside motel is seeking a $90,000 bank loan bearing a 10 per cent annual rate of interest. Mr Scroogy, the manager of the bank considering the loan application, requires the motel to produce a budgeted income statement for next year, 20X1. Mr Scroogy requires this information to help him assess RitzyRooms’ credit risk. RitzyRooms’ accountant has assembled the following schedule of information to facilitate preparation of 20X1’s budgeted income statement. Number of single rooms 10 Estimated occupancy of single rooms 70% Single rooms’ projected average room rate $50 Average contribution earned on single rooms 85% Number of double rooms 30 Estimated occupancy of double rooms 40% Double rooms’ projected average room rate $70 Average contribution earned on double rooms 90% Operating fi xed costs per annum (not including loan interest) $180,000 Tax rate levied on profi t after deduction of interest expense 40% Required: a) Assuming the motel is open for 360 days in the year, prepare the budgeted income statement for 20X1. Include the interest on the $90,000 loan in the budgeted statement. b) Mr Scroogy has a policy of not lending to any business that cannot demonstrate a projected times interest earned ratio greater than 3 (the times interest earned ratio was described in Chapter 5). Based on the budgeted fi gures, does RitzyRooms satisfy the bank manager’s loan approval requirement?