Question

Based on the projected occupancy, average rate, and the fees associated with the franchise, should Tom become a franchisee, or should he pursue other options? Why did you make that decision?

Information Tom needs to know: Projected occupancy is 70% Fees associated with the franchise is 1/2 of the current revenue brought in by the property Average rate is $101 a night Should Tom become a franchisee, or should he pursue other options? Why did you make that decision?

Answer 1

Based on the given information, Tom should pursue other options instead of becoming a franchisee due to the calculated profit margin and average revenue per occupied room. He should compare this information with other options to make an informed decision.

Step-by-step explanation:

Based on the given information, Tom should pursue other options instead of becoming a franchisee. Here's why:

1. Calculating the fees associated with the franchise: Since the fees are mentioned as 1/2 of the current revenue brought in by the property, we need to find the amount. Given that the revenue is $20,000, the fees would be (1/2) x $20,000 = $10,000.
2. Calculating the profit margin: To calculate the profit margin, we deduct the fees from the revenue and divide it by the revenue. Profit margin = (Revenue - Fees) / Revenue. In this case, profit margin = ($20,000 - $10,000) / $20,000 = 0.5 or 50%.
3. Assessing the occupancy rate: The projected occupancy is 70%, which means 70% of the rooms will be occupied on average. Assuming each room is charged at $101 per night, the projected revenue per occupied room per night is 70% x $101 = $70.70.

With a profit margin of 50% and an average revenue per occupied room of $70.70, Tom should compare these numbers with the potential profit margins and revenue of other options he is considering to make an informed decision.