Reference no: EM133045690

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:

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 -

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.