In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid

Question

2 months ago

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In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid

-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $80 per room per night to service. You spent $20.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $15 million. If the estimated demand is 10,000 room-nights, the break-even price is $ per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)

Business

1 answer:

soldi70 [3.6K] · Answer 1 · 2026-03-14T08:46:09+03:00

Answer:

To tackle this issue, let's begin by calculating the total expenses:

Total expenses = Capital expenses + Capital cost

Total expenses = $20 M + 0.10 * $20 M

Total expenses = $22 M

The break-even price reflects when total income matches total expenses. Thus:

$15 M + 20,000 * X = $22 M

Where X indicates the break-even cost per room for one night

Calculating for X:

20,000 * X = $7 M

X = $350

Thus, the break-even rate is $350 per room for one night.

Explanation:

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