The City of Mirada wants to offer cable television to its residents in 2013. The
ID: 2366214 • Letter: T
Question
The City of Mirada wants to offer cable television to its residents in 2013. The city has approached a company called CableVision to run its cable operations. After negotiating with key parties, CableVision has made the following agreements: Mirada will offer its residents a basic set of 25 cable television stations at a rate of $33.99 per month (all of the revenue will go to CableVision). The City of Mirada will maintain the physical facilities, and CableVision will pay the city $120,000 per month plus $3.50 per cable subscriber per month. CableVision will actually pay another company to broadcast the 25 channels and will pay this company an annual fixed fee of $760,000 plus a monthly amount of $8.25 per cable subscriber per month. CableVision will incur additional operating costs for billing, program news mailings, etc. These costs will include a fixed component of $115,000 per month, and a variable component of 8.5% of monthly revenue. CableVision has several questions about its monthly revenues, costs, and profits in 2013. Question 1: Assuming a tax rate of 34%, what must revenue be in order for CableVision to earn $29,000 per month in 2013?Explanation / Answer
* Mirada will offer its residents a basic set of 25 cable television stations at a rate of $32.49 per month (all of the revenue will go to CableVision). * The City of Mirada will maintain the physical facilities, and CableVision will pay the city $1,400,000 per year plus $3.75 per cable subscriber per month. * CableVision will actually pay another company to broadcast the 25 channels and will pay this company a monthly fixed fee of $60,000 plus a monthly amount of $8.25 per cable subscriber per month. CableVision will incur additional operating costs for billing, program news mailings, etc. These costs will include a fixed component of $120,000 per month, and a variable component of 7.0% of monthly revenue.