Evans Enterprises bought a prime parcel of beachfront property and plans to build a luxury hotel on it. After meeting with the architectural team, the Evans family has drawn up some information to make preliminary plans for construction. Excluding the suites, which are not part of this decision, the hotel will have four kinds of rooms: beachfront non-smoking, beachfront smoking, lagoon view non-smoking, and lagoon view smoking. To decide how many of the four kinds of rooms to plan for, the Evans family will consider the following information:
a. After adjusting for expected occupancy, the average nightly revenue for a beachfront non-smoking room is $175. The average nightly revenue for a lagoon view non-smoking room is $130. Smokers will be charged an extra $15.
b. Construction costs vary. The cost estimate is $12,000 for a lagoon view room and $15,000 for a beachfront room. Air purifying systems and additional smoke detectors and sprinklers ad $3000 to the cost of any smoking room. Evans Enterprises has raised $6.3 million in construction guarantees for this portion of the building.
c. There will be at least 100 but no more than 180 beachfront rooms.
d. Design considerations require that the number of lagoon view rooms be at least 1.5 times the number of beachfront rooms, and no more than 2.5 times that number.
e. Industry trends recommend that the number of smoking rooms be no more than 50% of the number of non-smoking rooms.
Let BN = number of beachfront non-smoking rooms
BS = number of beachfront smoking rooms
LN = number of lagoon view non-smoking rooms
LS = number of lagoon view smoking rooms
Max 175BN + 190BS + 130LN + 145LS
s.t. 15,000BN + 18,000BS + 12,000LN + 15,000LS ? 6,300,000
BN + BS ? 100
BN + BS ? 180
?1.5BN ? 1.5BS + LN + LS ? 0
?2.5BN ? 2.5BS + LN + LS ? 0
?0.5BN + BS ? 0.5LN + LS ? 0
BN, BS, LN, LS ? 0
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Fill in the blank(s) with correct word
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Ignoring any opportunity cost between the two investments, which will give you the higher annualized return and what will the annualized return be? A) T-bill; 2.2% B) T-bill; 4.09% C) CD; 3.8% D) CD; 1.9%
A company may choose a skimming strategy during the introduction stage of its product to help recover costs of development and to ________.
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