38/ Philadelphia Swim Club is planning for the coming year. Investors would like

Question

38/ Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $38,000,000 of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $12,800,000 for the year. About 550,000 members are expected to swim each year. Variable costs are about $13 per swimmer. Philadelphia Swim Club is a price -taker and won't be able to charge more than its competitors who charge S40 for a membership. What profit will it earn as a percent of assets? A. B. C. D. Loss of 52.5% Loss of 5.39% Profit of 33.68% Profit of 5.39%

Explanation / Answer

D. Profit of 5.39%

Net income = Contribution margin - Fixed costs = [550,000($40 - $13)] - $12,800,000 = $2,050,000

Return on asset = Net income / Assets = $2,050,000 / $38,000,000 = 5.39%

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