CableVision has been approached by the City of Mirada to run its cable operation

Question

CableVision has been approached by the City of Mirada to run its cable operations in 2016. After negotiating with key parties, CableVision has made the following agreements:

It will offer Mirada residents a basic set of 25 cable television stations at a rate of $32.99 per month.

CableVision will pay the city $105,000 per month plus $2.50 per cable subscriber per month to maintain the physical facilities.

CableVision will actually pay another company an annual fixed fee of $760,000 plus $9.00 per cable subscriber per month to broadcast the 25 channels.

CableVision estimates that operating costs for billing, program news mailings, etc. will be $115,000 per month plus 8% of monthly revenue.

CableVision has several questions about its monthly revenues, costs, and profits in 2016.

REQUIRED [ROUND YOUR ANSWER TO PART A, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.]

Part A (6 tries; 8 points)
1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2016?   18.8500

2. What are the estimated total monthly fixed costs for CableVision in 2016?   283333

Your answers are correct, but just to make sure that there are no rounding issues, use $18.85 for the estimated contribution margin per subscriber and $283,333 for the estimated monthly fixed costs in Parts B and C.

Part B (8 tries; 8 points)
1. What is CableVision's estimated monthly operating income in 2016 if 16,000 residents subscribe?   18267

2. How many monthly subscribers would be required for CableVision to break even in 2016?   15031

3. How many monthly subscribers would be required for CableVision to earn $20,000 per month in 2016?   16092

4. Assuming a tax rate of 32%, what must revenue be in order for CableVision to earn $20,000 per month in 2016?   547337

Part C (4 tries; 4 points)
Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 19,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $20,000 per month in 2016 (ignore taxes)?

Please answer Part C

Explanation / Answer

Part C

Let monthly operating cost = X

19000 x ($32.99 - 2.50 - 9) - 105000 - (19000 x 32.99 x 8% + X) = 20000

303310 - (50144.80 + X) = 20000

X = 233165.20

Thus monthly operating cost should be = 233165.20

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