Burr Hill golf course is planning for the coming season. Investors would like to earn a 10% return on the company's $50 million of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $25,000,000 for the golfing season. About 500,000 golfers are expected each year. Variable costs are about $10 per golfer. The Burr Hill golf course is a price-taker and won't be able to charge more than its competitors who charge $65 per round of golf. What profit will it earn in terms of dollars?

Question

Quizplus · Accepted Answer

To calculate the profit, first determine the total revenue and then subtract the total costs (fixed and variable) from it. Total revenue is the price per round ($65) multiplied by the number of golfers (500,000), which equals $32,500,000. Total variable costs are the variable cost per golfer ($10) multiplied by the number of golfers (500,000), which equals $5,000,000. Adding the fixed costs ($25,000,000) to the variable costs ($5,000,000) gives total costs of $30,000,000. Subtracting the total costs ($30,000,000) from the total revenue ($32,500,000) gives a profit of $2,500,000.

Burr Hill Golf Course Is Planning for the Coming Season