70.2K

Verified Solution

Link Copied!

Grand Chalets 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 16% return on the company's $100 million of assets. The company incurs primarily fixed costs to groom the runs and operate the lifts. Grand Chalets projects fixed costs to be $32,750,000 for the ski season. The resort serves about 780,000 skiers and snowboarders each season. Variable costs are about 9 per guest. Currently, the resort had such a favourable reputation among skiers and snowboarders that it had some control over the lift-ticket prices. Assume that Grand Chalets' reputation has diminished and other resorts in the vicinity are charging only $63 per lift ticket. Grand Chalets has become a price-taker and won't be able to charge more than its competitors. At the market price, Grand Chalets managers believe they will still serve 780,000 skiers and snowboarders each season. Requirements 1. If Grand Chalets 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 Grand Chalets' projected income and excess profit or shortfall. (Use parentheses or a minus sign to show a profit shortfall.) Revenue at market price Less: Total costs Requirements Operating income Compared to the desired operating income of Expected excess profit (profit shortfall) 1. If Grand Chalets 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. 2. Assume that Grand Chalets has found ways to cut its fixed costs to $29.5 million. What is its new target variable cost per skier/snowboarder? Compare this to the current variable cost per skier/snowboarder. Comment on your results. Print Done

Answer & Explanation Solved by verified expert

See Answer