8-3 (similar to) Question Help Winterp aradise o rates a Rocky Mountain ski reso

ID: 2553905 • Letter: 8

Question

8-3 (similar to) Question Help Winterp aradise o rates a Rocky Mountain ski resort The co m pany s anning its lift ticket prong for the co mng ski season Investors would like to earn a 1 7% return on company's $115 milion of assets. The company incurs primarily foxed costs to groom the runs and operate the lifts. WinterParadise projects fixed costs to be $44,000,000 for the ski season. The resort serves about 775,000 skiers and snowboarders each season. Variable costs are $7 per guest. The resort had such a favorable reputation among skiers and snowboarders that it had some control over the ift ticket prices Assume that WinterParadise's reputation has diminished and other resorts in the vicinity are charging only $68 per lit ticket WinterParadise has become a price-taker and won't be able to charge more than its competitors. At the market price, WinterParadise's managers believe they will still serve 775000 skiers and snowboarders each season Read the tequirements 1. If WinterParadise can't 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? Show your analysis Complete the following table to calculate WinterParadise's projected income and excess profit or shortfall (Use parentheses or a minus sign to show a profit shortfal ) Revenue at market price Less Total costs Operating income Compared to the desired operating income Expected excess proft (proft short an

Explanation / Answer

Answer:

Revenue at the markate price (775,000*66)

51150000

Less: varaible cost (775,000*7)

5425000

Contribution margin

45,725,000

Less: Fixed cost

44,000,000

Operating income

1,725,000

Compared to desired operating income
(115,000,000*17%)

19550000

Profit short fall

(17,825,000)