Mountaintop golf course is planning for the coming season. Investors would like to earn a 12% return on the company's $50,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be $24,000,000 for the golfing season. About 440,000 golfers are expected each year. Variable costs are about $20 per golfer. Mountaintop golf course is a price-taker and won't be able to charge more than its competitors who charge $102 per round of golf. What profit will it earn as a percent of assets?

Question

Quizplus · Accepted Answer

The profit will be determined by the total revenue minus the total cost. 
Total revenue = Price per round x Number of golfers 
Total cost = Fixed cost + Variable cost per golfer x Number of golfers

Price per round cannot exceed $102, so Mountaintop Golf Course will charge $102 per round. 
Total revenue = $102 x 440,000 golfers = $44,880,000

Variable cost per golfer is $20, so total variable cost = $20 x 440,000 golfers = $8,800,000

Total cost = Fixed cost + Variable cost = $24,000,000 + $8,800,000 = $32,800,000

Profit = Total revenue - Total cost = $44,880,000 - $32,800,000 = $12,080,000

Return on assets = (Profit / Total assets) x 100% 
Return on assets = ($12,080,000 / $50,000,000) x 100% = 24.16%

Therefore, the correct answer is C) Profit of 24.16%.

Mountaintop Golf Course Is Planning for the Coming Season