Question

ableVision has been approached by the City of Mirada to run its cable operations in 2020. 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 $29.99 per month . It will pay the city $120,000 per month plus $3.75 of the monthly cable subscriber rate per month to maintain the physical facilities. • It will actually pay another company an annual fixed fee of $700,000 plus 59.00 per cable subscriber per month to broadcast the 25 channels. Cablevision estimates that operating costs for billing, program news mailings, etc. will be $110,000 per month plus 9% of the monthly subscriber rate. Cablevision has several questions about its monthly revenues, costs, and profits in 2020. REQUIRED TROUND YOUR ANSWER TO PARTA, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR Part A (8 tries; 8 points) 1. What is the estimated monthy contribution margin per cable subscriber for Cablevision in 2020? 2. What are the estimated total monthly Axed costs for Cablevision in 2020? Submit Answer Tries 0/3 Part B (8 tries; & points) 1. What is Cablevision's estimated monthly operating income in 2020 if 19.000 residents subscribe? 2. How many monthly subscribers would be required for Cablevision to break even in 2020? 3. How many monthly subscribers would be required for Cablevision to earn $24,000 per month in 2020? 4. Assuming a tax rate or 34%, how many monthly subscribers would be required for Cablevision to eam $24,000 per month In 2020? Submit Answer Tries 0/6 Part C (4 tries; 4 points) Some of Cablevision's managers are uncertain about their estimate of monthly 1xed operating costs. Assuming that 20,000 residents subscribe, how large can monthly fixed operating costs be for Cablevision to still earn $24,000 per month in 2020 [ignore taxes)?

Answer 1

Part A
1. Estimated monthly contribution margin per cable subscriber = Selling price - Variable costs
= $29.99 - (3.75+9+29.99*9%) = $14.5409

2. Estimated monthly fixed costs = $120000+700000/12+110000 = $288333

Part B
1. Monthly Operating Income for 19000 subscribers = 19000 x $14.5409 - $288233 = ($11956)

2. Break Even = Fixed Costs / Contribution margin per subscriber
= $288333 / 14.5409 = 19830

3. Target to earn $24000 = (Fixed Costs+Target Profit) / Contribution margin per subscriber
= ($288333+24000) / 14.5409 = 21480

4. Profit before tax = $24000/0.66 = $36364

Target to earn $23000 after tax = (Fixed Costs+Target Profit) / Contribution margin per subscriber
= ($288333+36364) / 14.5409 = 22330

Part C
Monthly Fixed Operating Costs = 20000 x $14.5409 - ($120000+700000/12) - $24000 = $88485 or $88484