Please, show your work/calculations. Skiable Acres operates a Rocky Mountain ski
ID: 2453931 • Letter: P
Question
Please, show your work/calculations.
Skiable Acres operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season.
Investors would like to earn a 10% return on investment on the company's $260,900,000 of assets. Skiable Acres projects fixed costs to be $30,000,000 for the ski season. The resort serves about 710,000 skiers and snowboarders each season. Variable costs are about $13 per guest. Last year, due to its favorable reputation, Skiable Acres was a price-setter and was able to charge $3 more per lift ticket than its competitors without a reduction in the number of customers it received.
a. If Skiable Acres cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level?
Complete the following table to calculate Skiable Acres's projected income.
Revenue at market price:
Less: Total costs:
Operating income:
b. Skiable Acres's projected operating income (profit) as a percent of assets amounts to _______%
c. Assume Skiable Acres has found ways to cut its fixed costs to $29,000,000.
What is its new target variable cost per skier/snowboarder? Complete the following table to calculate
Skiable Acres's new target variable cost per customer.
Revenue at market price:
Less: Desired profit:
Target full cost:
Less: Reduced level of fixed costs:
Target total variable costs:
Divided by number of skiers/snowboarders:
Target variable cost per skier/snowboarder:
Please, show your work.
Explanation / Answer
Answer:-
If Skiable Acres cannot reduce its costs, what profit will it earn? State your answer in dollars and as a percent of assets. Will investors be happy with the profit level?
So , first we need to find revenues as we do not know the market price.
We know investor expects a profit of 10% on assets = 10%260,900,000 = $ 26,090,000
So Profit = $26,090,000
Cost = $ 30,000,000+9,230,000 = $29,230,000
Revenue = Profit + cost = $65,320,000
Market price = $65,320,000/710,000= $92
b.Skiable Acres's projected operating income (profit) as a percent of assets amounts to
Now since we know market price = $92
Skiable charages $3 more than market price = $95
Projected income as a percent of assets = 28,220,000/260,900,000= 10.82%
c.What is its new target variable cost per skier/snowboarder? Complete the following table to calculate
Revenue at market price:
Revenue at market price $65,320,000 Total cost Fixed 30,000,000 Variable($13*710,000) 9,230,000 $39,230,000 Operating income $26,090,000