Janice Long is considering building a budget hotel that offers clean small rooms with bathrooms.She anticipates that her 120 rooms will rent for 39,600 room-nights per year.The market price for equivalent rooms is $60 per night.Janice estimates that the capital cost will be $6,500,000 and she would like an annual return of 10%.Following are the estimated annual operating costs:
Required:
a.What is the full cost per room-night?
b.Can Janice 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 Janice accept this offer? Show your calculations.

Question

Janice Long is considering building a budget hotel that offers clean small rooms with bathrooms.She anticipates that her 120 rooms will rent for 39,600 room-nights per year.The market price for equivalent rooms is $60 per night.Janice estimates that the capital cost will be $6,500,000 and she would like an annual return of 10%.Following are the estimated annual operating costs:
  Required:
a.What is the full cost per room-night?
b.Can Janice 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 Janice accept this offer? Show your calculations.

Quizplus · Accepted Answer

The Answer of Janice Long is considering building a budget hotel that offers clean small rooms with bathrooms.She anticipates that her 120 rooms will rent for 39,600 room-nights per year.The market price for equivalent rooms is $60 per night.Janice estimates that the capital cost will be $6,500,000 and she would like an annual return of 10%.Following are the estimated annual operating costs:
  Required:
a.What is the full cost per room-night?
b.Can Janice 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 Janice accept this offer? Show your calculations.

Janice Long Is Considering Building a Budget Hotel That Offers