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 $33.99 per month.
• It will pay the city $110,000 per month plus $4.00 per cable subscriber per month to maintain the physical facilities.
• It will actually pay another company an annual fixed fee of $760,000 plus $7.75 per cable subscriber per month to broadcast the 25 channels.

CableVision estimates that operating costs for billing, program news mailings, etc. will be $110,000 per month plus 8% of monthly revenue.

CableVision has several questions about its monthly revenues, costs, and profits in 2019.

REQUIRED [ROUND YOUR ANSWER TO PART A, QUESTION 1 TO THE NEAREST CENT; ROUND ALL OTHER ANSWERS TO THE NEAREST UNIT OR NEAREST DOLLAR.]

Part A (8 tries; 8 points)
1. What is the estimated monthy contribution margin per cable subscriber for CableVision in 2019?   

#1 IS INCORRECT

2. What are the estimated total monthly fixed costs for CableVision in 2019?   

#2 IS INCORRECT

Incorrect.

Tries 2/8

Previous Tries

Part B (8 tries; 8 points)
1. What is CableVision's estimated monthly operating income in 2019 if 18,000 residents subscribe?    

2. How many monthly subscribers would be required for CableVision to break even in 2019?    

3. How many monthly subscribers would be required for CableVision to earn $29,000 per month in 2019?    

4. Assuming a tax rate of 31%, how many monthly subscribers would be required for CableVision to earn $29,000 per month in 2019?   

Tries 0/8

Part C (4 tries; 4 points)
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 $29,000 per month in 2019 (ignore taxes)?  

Answer 1

Part A

1. Estimated monthly contribution margin per cable subscriber: $19.52

Subscription price		33.99
Less: Variable costs	4.00
	7.75
($33.99 x 0.08)	2.72	14.47
Contribution margin		19.52

2. Estimated total monthly fixed costs: $283333

$110000 + ($760000/12) + $110000 = $110000 + $63333 + $110000 = $283333

Part B

1. Estimated monthly operating income = (18000 x $19.52) - $283333 = $351360 - $283333 = $68027

2. Monthly subscribers to break-even = Monthly fixed costs/Contribution margin per subscriber = $283333/$19.52 = 14515

3. Monthly subscribers = (Target income + Monthly fixed costs)/Contribution margin per subscriber = ($29000 + $283333)/$19.52 = $312333/$19.52 = 16001

4. Before tax income required = $29000/(1 - 0.31) = $29000/0.69 = $42029

Monthly subscribers = Monthly fixed costs/Contribution margin per subscriber = ($42029 + $283333)/$19.52 = 325362/$19.52 = 16668

Part C

Assuming the monthly fixed operating costs to be 'x'

(19000 x $19.52) - ($110000 + $63333) - x = $29000

$370880 - $173333 - x = $29000

x = $168547