INFO

The cheapest is a generic tiny house for $20,000 that will require additional work to provide the technology to meet their goals. They estimate about $10,000 additional per house. They also found a supplier in NSW that will provide two different custom versions (Woolamai $71,900 and Yaroomba $89,900) on the website Aussie Tiny Houses. They have not contacted them but expect to be able to negotiate a 20% discount if they can guarantee volume purchases.

They are considering the following model: Each house would be

shared with 50% belonging to the company and 50% belonging to an investment.

The revenue for the house when rented out (as a short term rental

accommodation) would be split between: 50% to the investors, 20% to the

landowner and 30% to the company. The cost of cleaning would be deducted from

the pre-distributed revenue.

THE QUESTION

The best estimate for the central costs that need to be incurred

are $85,000 to develop the Tiny Hotels app, and administrative/legal costs of

approximately $25,000 per year. If the advertising costs per year are $35,000

for up to 5 hotels and $60,000 for more than 5 hotels, what is the break even

point in terms of the number of hotels that need to be sold and be operating

each year?

(hint: there are two cost scenarios because of the shift in

advertising costs so you will need to do NPV calculations under the two

scenarios).