Use the information below to answer the following question(s) :
Rosemont Tennis is planning for the coming year. Investors would like to earn a 12% return on the company's $25 million of assets. The company primarily incurs fixed costs to maintain the tennis courts. Fixed costs are projected to be $12,500,000 for the year. About 500,000 court time hours are expected to be played each year. Variable costs are about $5 per hour of court time.
-If Rosemont Tennis is a price-taker and won't be able to charge more than its competitors who charge $32.50 per hour of court time. What profit will it earn in terms of dollars?
A) $1,250,000
B) $(12,500,000)
C) $6,250,000
D) $(1,250,000)
Correct Answer:
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