2. Luxury Hotel is considering purchasing an existing hotel in the entertainment district. The hotel will require Luxury to invest $2 million to purchase the hotel. The hotel will be straight line depreciated over 20 years. At full capacity, the hotel has 100 rooms and can rent up to 36,500 room-nights per year. Operating costs are as follows: Variable cost per room per night: $20 Fixed costs per year (excluding depreciation): $525,000 Luxury requires an annual income that represents a return of 20% on the initial investment. Required A. At full capacity, what is the price charged per room in order to make the desired income B. What are qualitative issues should be considered?
2. Luxury Hotel is considering purchasing an existing hotel in the entertainment district. The hotel will require Luxury to invest $2 million to purchase the hotel. The hotel will be straight line depreciated over 20 years. At full capacity, the hotel has 100 rooms and can rent up to 36,500 room-nights per year. Operating costs are as follows: Variable cost per room per night: $20 Fixed costs per year (excluding depreciation): $525,000 Luxury requires an annual income that represents a return of 20% on the initial investment. Required A. At full capacity, what is the price charged per room in order to make the desired income B. What are qualitative issues should be considered?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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2. Luxury Hotel is considering purchasing an existing hotel in the entertainment district. The hotel will require Luxury to invest $2 million to purchase the hotel. The hotel will be straight line
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