Variable operating costs Fixed costs Salaries and wages Maintenance of building and pool Other operating and administration costs Total fixed costs $3 per room-night $177,000 38,000 190,000 $405,000 The capital invested in the motel is $1,500,000. The partnership's target return on investment is 20%. Brady 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. 1. What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Brady's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 10%, the expected number of room-nights Brady could rent would increase by 10%. Should Brady reduce prices by 10%? Show your calculations. Required

Variable operating costs Fixed costs Salaries and wages Maintenance of building and pool Other operating and administration costs Total fixed costs $3 per room-night $177,000 38,000 190,000 $405,000 The capital invested in the motel is $1,500,000. The partnership's target return on investment is 20%. Brady 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. 1. What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Brady's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 10%, the expected number of room-nights Brady could rent would increase by 10%. Should Brady reduce prices by 10%? Show your calculations. Required

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 6P

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