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 be able to sell only 10,000 room-nights, which cost $50 per room per night to service. You spent $30.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $25 million.
If the estimated demand is 10,000 room-nights, the break-even price is
per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)