Question

CableVision has been approached by the City of Mirada to run its cable operations in 2019. 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 $30.49 per month. It will pay the city $100,000 per month plus $3.25 per cable subscriber per month to maintain the physical facilities. It will actually pay another company an annual fixed fee of $700,000 plus $7.50 per cable subscriber per month to broadcast the 25 channels. CableVision estimates that operating costs for billing, program news mailings, etc. will be $115,000 per month plus 8% of monthly revenue. CableVision has several questions about its monthly revenues, costs, and profits in 2019.

Part A. Assuming a tax rate of 32%, how many monthly subscribers would be required for CableVision to earn $23,000 per month in 2019?

Part B. Some of CableVision's managers are uncertain about their estimate of monthly fixed operating costs. Assuming that 19,000 residents subscribe, how large can monthly fixed operating costs be for CableVision to still earn $23,000 per month in 2019 (ignore taxes)?

Answer 1