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 hour of court time.What profit will it earn as a percent of assets?

Question

Quizplus · Accepted Answer

The total revenue is $32.50 * 500,000 = $16,250,000. Total variable costs are $5 * 500,000 = $2,500,000. Total costs are $12,500,000 (fixed) + $2,500,000 (variable) = $15,000,000. Profit is $16,250,000 - $15,000,000 = $1,250,000. Profit as a percent of assets is ($1,250,000 / $25,000,000) * 100% = 5%.

Rosemont Tennis Is Planning for the Coming Year