Wesley Horn, owner of Horn’s Inn, has recently decided to have Service, Inc., manage his lodging property. Horn’s Inn has 150 guestrooms and a 100-seat coffee shop. The average annual revenue is as follows:

Room sales $1, 800,000 Food sales 600,000 Other income 100,000 Total $ 2,500,000 IAUOE is expected to be 40% of total revenue each year.

Service, Inc. has proposed three post-opening management fee options:

1. $1,500 per guestroom per year 2. 4% of total sales and 15% of IAUOE 3. 6% of room sales, 2% of food sales, and 18% of IAUOE Required:

1. Identify which option Wesley Horn should prefer if his sole goal is to minimize management fees.

2. Identify the option Service, Inc., would most likely prefer.