Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $35,000,000 of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $13,000,000 for the year. About 510,000 members are expected to swim each year. Variable costs are about $11 per swimmer. Philadelphia Swim Club is a price-taker and won't be able to charge more than its competitors who charge $41 for a membership. What profit will it earn as a percent of assets?

Question

Quizplus · Accepted Answer

To calculate the profit as a percent of assets, first determine the total revenue, total costs, and then the profit. Revenue = 510,000 swimmers * $41/swimmer = $20,910,000. Total variable costs = 510,000 swimmers * $11/swimmer = $5,610,000. Total costs = Fixed costs + Variable costs = $13,000,000 + $5,610,000 = $18,610,000. Profit = Revenue - Total costs = $20,910,000 - $18,610,000 = $2,300,000. Profit as a percent of assets = ($2,300,000 / $35,000,000) * 100 = 6.57%.

Philadelphia Swim Club Is Planning for the Coming Year