JE F5:15 oo AT&T; 95% s3 lite msu.edu This problem contains three parts. In Part
ID: 2421595 • Letter: J
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JE F5:15 oo AT&T; 95% s3 lite msu.edu This problem contains three parts. In Part A, you are asked to determine the parameters of the profit function the contribution margin and the fixed costs. You should not move on to Parts B and C until you get Part A correct, or until you use up all of your tries. The correct profit function parameters will be given to you after you have completed Part A you should use these parameters in Parts B and C. The problem is worth 20 points. Parts A and B are worth eight points each Part C is worth four points. To get the eight points for Part A, you must answer both questions correctly to get the eight points for Part B, you must all four questions correctly. You get six tries on Part A, eight on Part B, and four on Part C. 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 $32.49 per month Cablevision will pay the city $110,000 per month plus $3.50 per cable subscriber per month to maintain the physical facilities Cablevision will actually pay another company an annual fixed fee of $790,000 plus $7.50 per cable subscriber per month to broadcast the 25 channels Cablevision estimates that operating costs for billing, program news mailings, etc. will be $120,000 per month plus 9% of monthly revenue. Cablevision has several questions about its monthly revenues, costs, and profits in 2016.Explanation / Answer
Solution:
TFC = 790,000 = 60,833 + 110,000 + 120,000 = 290,833
Part A 1. What is the estimated monthly contribution margin per cable subscriber for CableVision in 2016? CM = (32.49 – ( 7.50 + 3.50 + .09(32.49) = 32.49 – (11 + 2.92) = 18.56 2. What are the estimated total monthly fixed costs for CableVision in 2016?TFC = 790,000 = 60,833 + 110,000 + 120,000 = 290,833
Part B 1. What is CableVision's estimated monthly operating income in 2016 if 16,000 residents subscribe? MOI = 18.56(16,000) – 290,833 = 6127 2. How many monthly subscribers would be required for CableVision to break even in 2016? 0 = 18.56x – 290,833 290,833 = 18.56 X X = 290,833 / 18.56 X = 15669.88 3. How many monthly subscribers would be required for CableVision to earn $26,000 per month in 2016? 26,000 = 18.56x – 290,833 26,000 + 290,833 = 18.56x 316,833 = 18.56x x = 17,070.74 4. Assuming a tax rate of 35%, what must revenue be in order for CableVision to earn $26,000 per month in 2016? 26,000 = P (1 - 0.35) 26,000 = 0.65 P P = 26,000 / 0.65 P = 40,000 Part C Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 21,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $26,000 per month in 2016 (ignore taxes)? 26,000 = 18.56 (21,000) – (FOC + 115,000 + 60,833) 26,000 = 389,760 – FOC – 175833 FOC = 389,760 – 26,000 – 175833 FOC = 187,927Related Questions
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