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.
-Rosemont Tennis is a price-taker and won't be able to charge more than its competitors who charge $32.50 per round of court time.What profit will it earn in terms of dollars?

Question

Quizplus · Accepted Answer

The profit is calculated as total revenue minus total costs. Total revenue is 500,000 hours * $32.50 = $16,250,000. Total costs are fixed costs ($12,500,000) plus variable costs (500,000 hours * $5 = $2,500,000), totaling $15,000,000. Profit is $16,250,000 - $15,000,000 = $1,250,000.

Rosemont Tennis Is Planning for the Coming Year