Question

Stubs-R-Us is a local event ticket broker. Last year, the company sold 1,000,000 tickets with an average commission of $5. Because of the general economic climate, Stubs expects ticket volume to decline by 20 percent. In addition, employees at a local insurance company headquarters accounted for 5 percent of Stubs’ volume. The headquarters relocated to another state and all the employees closed their accounts.

Offsetting these factors is the observation that the average commission per sale is likely to increase by 9 percent because the average ticket prices are expected to be larger in the coming year.

Required:

Estimate commission revenues for Stubs-R-Us for the coming year.

Friendly Financial has $220 million in consumer loans with an average interest rate of 18 percent. The bank also has $140 million in home equity loans with an average interest rate of 13 percent. Finally, the company owns $35 million in corporate securities with an average rate of 10 percent.

Managers at Friendly Financial estimate that next year its consumer loan portfolio will rise to $338 million and the interest rate will fall to 16 percent. They also estimate that its home equity loans will fall to $120 million with an average interest rate of 13 percent, and its corporate securities portfolio will increase to $37 million with an average rate of 10 percent.

Required:

Estimate Friendly Financial’s revenues for the coming year. (Enter your answer in thousands of dollars.)

Answer 1

Question 1:

Particulars	Last Year	Coming Year
Total Tickets Sold	$   1,000,000.00	$                          -
Ticket of Local Insurance Company's Employees	$         50,000.00	$                          - #1
Balance Other Tickets	$      950,000.00	$      760,000.00 #2
Revenue per ticket for the Coming year		$                     5.45
Total Revenue for the coming year		$   4,142,000.00

#1: Since the employees will not be purchasing the ticket, the same is marked as Nil for the coming year.

#2: The balance ticket sold will be falling at the rate of 20% yoy.

Question 2:

	Last year	Coming Year
	Amount	Rate	Amount	Rate
Consumer Loan	220000	18%	338000	16%
Home Equity Loan	140000	13%	120000	13%
Corporate Security	35000	10%	37000	10%
Total Revenue		61300#1		73380#2

#1 Calculation of Revenue of last year = 220000 * 0.18 + 140000 * 0.13 + 35000 * 0.1

#2 Calculation of Revenue of coming year = 338000 * 0.16 + 120000 * 0.13 + 37000 * 0.1