Janice Long is considering building a budget hotel that offers clean small rooms with bathrooms. She anticipates that her 120 rooms will rent for 39,600 room-nights per year. The market price for equivalent rooms is $60 per night. Janice estimates that the capital cost will be $6,500,000 and she would like an annual return of 10%. Following are the estimated annual operating costs:

Variable operating costs$ 21 per room night

Fixed costs:Janice Long is considering building a budget hotel that offers clean small rooms with bathrooms. She anticipates that her 120 rooms will rent for 39,600 room-nights per year. The market price for equivalent rooms is $60 per night. Janice estimates that the capital cost will be $6,500,000 and she would like an annual return of 10%. Following are the estimated annual operating costs:

Variable operating costs$ 21 per room night

Fixed costs:

Salaries and wages$ 420,000

Building maintenance89,000

General administration280,000

Total fixed costs$ 789,000

Required:

a.What is the full cost per room-night? 12

b.Can Janice meet the targeted return on investment based on the estimated costs and revenue? Show your calculations. No. 6,500,000x10%= 65,000

6,565,000/365=17986.30/120=149.88

Salaries and wages$ 420,000

Building maintenance89,000

General administration