The profit margin of the hotel (profit as a percent of sales) is $11k/160k = 7%. However, if they decide to open the hotel for the summer they would need to reach 24% occupancy in order to reach the same absolute profits of about $11k and their profit margin would drop to 6%. The only way they can maintain profit margins of 7 to 7.5% would be to get occupancy during the off-season of 30%, which is definitely not a sure thing. One option would be to try opening the hotel for the off-season for one-year and testing what occupancy rates they can expect. If they are lower than they need,they could always decide not to open the hotel during the off-season in the future. This option does not exist for the “pool” options. Once they decide to build a pool they will have incurred a major capital expenditure and will likely need to support this investment over time in order to please their clientele who might have gotten used to having a pool. Therefore,while the business is quite profitable as is, I would still choose to open the hotel in the summer months.