MCM Entertainment is considering building a luxury hotel in Las Vegas. MCM anticipates that her 200 rooms will rent for 66,000 room-nights per year. The market price for equivalent rooms is $210 per night. MCM estimates that the capital cost will be $13,650,000 and they expect an annual return of 15%. Following are the estimated annual operating costs:

Variable operating costs $ 145 per room night

Fixed costs:

Salaries and benefits $ 750,000

Facility maintenance 160,000

Administration 510,000

Total fixed costs $1,420,000

Required:

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

b. Can MCM meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.

c. A tour operator has offered $100 per night for 40 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should MCM accept this offer? Show your calculations.