Case Study: An international hotel chain presently franchises out one of its hotel properties that has 120 rooms in London's Mayfair District. The present franchise agreement calls for the hotel chain to receive an annual fee from the franchisee of f 80 per room on the first 100 rooms, plus $ 50 per room for any in excess of 100 rooms, plus 5 % of total revenue of the property. As the hotel chain does not own the actual property, the existing franchise agreement is due to expire at the end of this year, and the franchisee has asked the franchisor to consider taking over the operation on a management contract. The terms of this proposed management contract would be five years where the hotel chain would receive a fee of 4 % of total revenue plus 8 % of income before fixed charges. In the first year of the contract, revenue is forecast to be f 900,000 and income before fixed charges is predicted to be f 300,000. In each of the remaining four years, both revenue and income before fixed charges are expected to increase by 10 % per year over the preceding year. In year 1, the present franchisor's additional head office administrative expenses with a management contract would be f 15,000. Thereafter, the amount will then drop to only f 5,000 per year