Cheap Stay Inc. is considering building a budget hotel that offers clean small rooms with...
70.2K
Verified Solution
Link Copied!
Question
Accounting
Cheap Stay Inc. is considering building a budget hotel that offers clean small rooms with bathrooms. They anticipate that the 120 rooms will rent for 36,000 room-nights per year. The market price for equivalent rooms is $60 per night. Cheap Stay estimates that the cost of capital will be $7,900,000 and they would like an annual return on 15%. Following are the estimated annual operating costs:
Variable operating costs $18 per room night
Fixed Costs:
Salaries and wages $450,000
Building maintenance 86,000
General administration 230,000
Total fixed costs $766,000
REQUIRED:
1. What is the full cost per room-night?
2. Can Cheap Stay Inc. meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
3. A tour operator has offered $30 per room per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Cheap Stay Inc. accept this offer?
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
