Question 4.1 Hotel+ is considering building a budget hotel that offers clean small rooms with bathrooms. The company anticipates that 120 rooms will rent for 39,600 room-nights per year. The market price for equivalent rooms is $60 per night. Hotel+ estimates that the capital cost will be $6,500,000 andA the company would like an annual return of 10%. Following are the estimated annual operating costs: Variable operating costs$ 21 per room nightFixed costs: Salaries and wages$ 420,000Building maintenance89,000General administration280,000Total fixed costs$ 789,000 RequiredWhat is the full cost per room-night?Can Hotel+ meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.A tour operator has offered $30 per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel+ accept this offer? Show your calculations.

1.Variable operating costs per room-night$ 21.00Fixed operating costs per room-night…

Answered: Question 4.1…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 6P

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Question 4.1

Hotel+ is considering building a budget hotel that offers clean small rooms with bathrooms. The company anticipates that 120 rooms will rent for 39,600 room-nights per year. The market price for equivalent rooms is $60 per night. Hotel+ estimates that the capital cost will be $6,500,000 andA the company would like an annual return of 10%. Following are the estimated annual operating costs:

Variable operating costs	$ 21 per room night
Fixed costs:
Salaries and wages	$ 420,000
Building maintenance	89,000
General administration	280,000
Total fixed costs	$ 789,000

Required

What is the full cost per room-night?
Can Hotel+ meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
A tour operator has offered $30 per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel+ accept this offer? Show your calculations.

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