Larry Bett is considering building a budget hotel that offers clean small rooms with bathrooms.He anticipates that his 120 rooms will rent for 36,000 room-nights per year.The market price for equivalent rooms is $60 per night.Larry estimates that the capital cost will be $7,900,000 and he would like an annual return of 15%.Following are the estimated annual operating costs:
Required:
a.What is the full cost per room-night?
b.Can Larry meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
c.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 Larry accept this offer?

Question

Larry Bett is considering building a budget hotel that offers clean small rooms with bathrooms.He anticipates that his 120 rooms will rent for 36,000 room-nights per year.The market price for equivalent rooms is $60 per night.Larry estimates that the capital cost will be $7,900,000 and he would like an annual return of 15%.Following are the estimated annual operating costs:
  Required:
a.What is the full cost per room-night?
b.Can Larry meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
c.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 Larry accept this offer?

Quizplus · Accepted Answer

The Answer of Larry Bett is considering building a budget hotel that offers clean small rooms with bathrooms.He anticipates that his 120 rooms will rent for 36,000 room-nights per year.The market price for equivalent rooms is $60 per night.Larry estimates that the capital cost will be $7,900,000 and he would like an annual return of 15%.Following are the estimated annual operating costs:
  Required:
a.What is the full cost per room-night?
b.Can Larry meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
c.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 Larry accept this offer?

Larry Bett Is Considering Building a Budget Hotel That Offers