In early 2008, you purchased and remodeled a 120-room hotel to handle the increa
ID: 1095626 • Letter: I
Question
In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, 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 2008, and your cost of capital is 10%. The current going price to sell the hotel is $15million. What is your breakeven price? (Please make sure to show the steps to your solution
Explanation / Answer
let x be th break even price
20000 * x = 20million *1.05 -15million
x = 300 pr room per night service