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%
		Loss of 53.17%
		Profit of 6.57%
		Loss of 6.57%

Answer 1

Yearly Contribution from members = ($41-$11)* 510000

= $15,300,000

Fixed cost for the year= $13,000,000

Profit for the year = $15,300,000 - $13,000,000

= $2,300,000

Profit as percentage of asset = $2,300,000/$35,000,000 = 6.57%

Third option is correct.