Question

#4

Philadelphia Swim Club is planning for the coming year. Investors would like to earn a​ 10% return on the​ company's $ 39 comma 000 comma 000 of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $ 12 comma 600 comma 000 for the year. About 510 comma 000 members are expected to swim each year. Variable costs are about $ 12 per swimmer. Philadelphia Swim Club is a priceminustaker and​ won't be able to charge more than its competitors who charge $ 42 for a membership. What profit will it earn as a percent of​ assets?

Answer 1

Particulars	Amount (in $)
Sales (510,000 x $42)	$21,420,000
Less: Variable Costs              (510,000 x $12 )	($6,120,000)
Contribution margin	$15,300,000
Less: Fixed Costs	($12,600,000)
Net Income	$2,700,000
Return on assets           = Net income / Assets           =   $2,700,000 / $39,000,000           =   6.92%
Profit will it earn as a percent of​ assets	6.92%