Question

# Question 11 Rolling Hills Golf Course is planning for the coming golfing season. Investors would like...

Question 11

Rolling Hills Golf Course is planning for the coming golfing season. Investors would like to earn a 10% return on the company's \$60,000,000 of assets. The company primarily incurs fixed costs to groom the greens and fairways. Fixed costs are projected to be \$30,000,000 for the season. About 500,000 rounds of golf are expected to be played each year. Variable costs are about \$17 per round of golf. Rolling Hills has a favorable reputation in the area and, therefore, has some control over the sales price of a round of golf. Using a cost-plus pricing approach, what sales price should Rolling Hills charge for a round of golf to achieve the desired profit?

 A. \$60 B. \$77 C. \$89 D. \$43

Return on assets is expected to be 10% and company's total assets are of \$60,000,000

Total expected profit = Total assets * Desired return on assets = \$60,000,000 * 10% = \$6,000,000

Total expected rounds of golf : 500,000

 Total expected fixed costs \$30,000,000 (+) Total expected variable costs [ Total expected rounds of golf * Variable cost per round of golf = 500,000 rounds * \$17 ] \$8,500,000 Total expected costs \$38,500,000 (+) Total expected profit \$6,000,000 Total expected sales value \$44,500,000 ( / ) Total expected rounds of golf 500,000 sales price for a round of golf \$89

Option C [ \$89 ] is the correct answer.

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