Reference no: EM132969639

Question - Hotel City is considering building a highrise, luxury hotel in downtown Regina. They anticipate that the 150 rooms will rent for 30,000 room-nights per year. The market price for equivalent rooms is $200 per night. Hotel City estimates the cost of capital to be $12,000,000 and they would like an annual return on 16%. Following are the estimated annual operating costs: Variable operating costs $120 per room night Fixed Costs: Salaries and wages $600,000 Building maintenance 130,000 General administration 270,000 Total fixed costs $1,000,000.

REQUIRED -

1. What is the full cost per room-night?

2. Can Hotel City meet its targeted ROI based on the estimated costs and revenue? Show your calculations.

3. A tour operator has offered $130 per room per night for 25 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel City accept this offer?