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John Brown is the managing partner of a business that has just finished building a 60-room motel Brown anticipates that he will rent these rooms
John Brown is the managing partner of a business that has just finished building a 60-room motel Brown anticipates that he will rent these rooms for 12.000 nights next year (or 12,000 room-nights). AH rooms are similar and will rent for the same price Brown estimates the following operating costs for next year. The capital invested in the motel is $1, 040.000. The partnership's target return on investment is 30%. Brown expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. Requirements What price should Brown charge for a room-night? What is the markup as a percentage of the full cost of a room-night? Brown's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 5%. the expected number of room-nights Brown could rent would increase by 5%. Should Brown reduce prices by 5%' Show your calculations
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