Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $47,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $22,000,000 for the golfing season. About 420,000 golfers are expected each year. Variable costs are about $17 per golfer. The Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $79 per round of golf. What profit will it earn in terms of dollars?

Question

Quizplus · Accepted Answer

First, we need to calculate the total revenue by finding the number of rounds played:
420,000 golfers per year x 1 round per golfer = 420,000 rounds per year

Since the Mountaintop golf course is a price-taker, it can only charge the same as its competitors, which is $79 per round. Therefore:
Total revenue = 420,000 rounds per year x $79 per round = $33,180,000 per year

Next, we need to calculate the total variable costs:
Total variable costs = $17 per golfer x 420,000 golfers per year = $7,140,000 per year

Now, we can calculate the contribution margin per year:
Contribution margin = Total revenue - Total variable costs
Contribution margin = $33,180,000 - $7,140,000
Contribution margin = $26,040,000 per year

Finally, we can calculate the operating profit by subtracting the fixed costs from the contribution margin:
Operating profit = Contribution margin - Fixed costs
Operating profit = $26,040,000 - $22,000,000
Operating profit = $4,040,000 per year

Therefore, the answer is C, Mountaintop golf course will earn $4,040,000 in profit.

Mountaintop Golf Course Is Planning for the Coming Season