2. In early 2003, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2003, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will only be able to sell 20,000 room-nights that cost on average $50 per room per night to service. You spent $20 million on the hotel in 2003, and your cost of capital is 10%. The current going price to sell the hotel is $15million. What is your breakeven price? First, we must calculate the total cost: Total Cost = Capital cost + Cost of capital $20 million + [.10 * $20 million) = $22 million = Total cost If you were to keep the same rate of $50 * 20,000 room night = $1 million dollars $15 million + $1 million = $16 million, which does not equal yourtotal cost, therefore you lose :5 million dollars. To nd a breakeven price, we must set an equation with a variable. If we can only sell 20,000 rooms, we are going to have to nd a new rate per night to breakeven. $15 million + 20,000 rooms * X = $22 million 20,000 * X = $?' million it = $ 350 per room per night to break even