All-inclusive resorts generally have higher fixed costs

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Question

All-inclusive resorts generally have higher fixed costs than traditional hotels because they must maintain a minimum level of services, such as keeping food and beverage outlets open and having nightly entertainment. Which of the following statements is most likely to be false for traditional hotels and all-inclusive resorts? (a) All-inclusive resorts have higher operating leverage than traditional hotels. (b) If both all-inclusive resorts and traditional hotels increase their occupancy from 80% to 85%, profitability of all-inclusive resorts increase more than the profitability of traditional hotels. (c) For the same financial leverage, all-inclusive resorts have higher equity betas than the traditional hotels. (d) A 5% increase in occupancy increase the fixed costs of traditional hotels more than the fixed costs of all-inclusive resorts. (e) A 5% decrease in occupancy reduce the total costs of traditional hotels more than the total costs of all-inclusive resorts.

Reference no: EM133636825

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