Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year: Variable operating costs $ 5 per room-night Fixed costs Salaries and wages $171,000 Maintenance of building and pool 42,000 Other operating and administration costs 162,000 Total fixed costs $375,000 The capital invested in the motel is $900,000. The partnership's target return on investment is 25%. Bartlett expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. 1. What price should Bartlett charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Bartlett's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 15%, the expected number of room-nights Bartlett could rent would increase by 20%. Should Bartlett reduce prices by 15%? Show your calculations.
Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year: Variable operating costs $ 5 per room-night Fixed costs Salaries and wages $171,000 Maintenance of building and pool 42,000 Other operating and administration costs 162,000 Total fixed costs $375,000 The capital invested in the motel is $900,000. The partnership's target return on investment is 25%. Bartlett expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. 1. What price should Bartlett charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Bartlett's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 15%, the expected number of room-nights Bartlett could rent would increase by 20%. Should Bartlett reduce prices by 15%? Show your calculations.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications
Section: Chapter Questions
Problem 30P
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Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year:
Variable operating costs
|
$ 5 per room-night
|
---|---|
Fixed costs
|
|
Salaries and wages
|
$171,000
|
Maintenance of building and pool
|
42,000
|
Other operating and administration costs
|
162,000
|
Total fixed costs
|
$375,000
|
The capital invested in the motel is $900,000. The
1.
|
What price should
Bartlett
charge for a room-night? What is the markup as a percentage of the full cost of a room-night? |
2.
|
Bartlett's
|
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