Philadelphia Swim Club is planning for the coming year. Investors would like to
ID: 2520169 • Letter: P
Question
Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $35,000,000 of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $13,000,000 for the year. About 510,000 members are expected to swim each year. Variable costs are about $11 per swimmer. Philadelphia Swim Club is a price-taker and won't be able to charge more than its competitors who charge $41 for a membership. What profit will it earn as a percent of assets?
Profit of 37.14%
Profit of 6.57%
Loss of 53.17%
Loss of 6.57%
Profit of 37.14%
Profit of 6.57%
Loss of 53.17%
Loss of 6.57%
Explanation / Answer
Answer
profit of 6.57 %
Net income = contribution margin - fixed cost
= 510000 (41 - 11 ) - 13000000
= 15300000 - 13000000
= 2300000
return of asset = net income / assets
= 2300000 / 35000000
= 6.57 %