The Equine Management Academy (EMA) which was founded in 1990 is a privately owned organization located in

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The Equine Management Academy (EMA) which was founded in 1990 is a privately owned organization located in Hartland, a developing country which has a large agricultural sector and where much transportation is provided by horses.EMA operates an equine college which provides a range of undergraduate and postgraduate courses for students who wish to pursue a career in one of the following disciplines:Equine (horse) surgeryEquine dentistry,Equine business management.The equine college which has a maximum capacity of 1200 students per annum is currently the only equine college in Hartland.The following information is available:(1). A total of 1200 students attended the equine college during the year ended 31 May 2018. Student mix and fees paid were as per the following table:

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(2). Total operating costs (all fixed) during the year amounted to $6 500 000.(3). Operating costs of the equine college are expected to increase by 4 percent during the year ending 31 May 2019. This led to a decision by the management to increase the fees of all students by 5 percent with effect from 1 June 2018. The management expect the number of students and the mix of students during the year ending 31 May 2019 to remain unchanged from those of the year ended 31 May 2018.(4). EMA also operates a riding school at which 240 horses are stabled. The riding school is open for business on 360 days per annum. Each horse is available for four horse-riding lessons per day other than on the 40 days per annum that each horse is rested, i.e. not available for the provision of riding lessons. During the year ended 31 May 2018, the riding school operated at 80 percent of full capacity.(5). Horse-riding lessons are provided for riders in three different skill categories. These are ?Beginner?, ?Competent? and ?Advanced?.During the year ended 31 May 2018, the fee per riding lesson was as follows:

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(6). Total operating costs of the riding school (all fixed) amounted to $5 750 000 during the year ended 31 May 2018,(7). It is anticipated that the operating costs of the riding school will increase by 6 percent in the year ending 31 May 2019. The management have decided to increase the charge per lesson, in respect of ?Competent? and ?Advanced? riders by 10 percent with effect from 1 June 2018. There will be no increase in the charge per lesson for ?Beginner? riders.(8). The lesson mix and capacity utilization of the riding school will remain the same during the year ending 31 May 2019.

Required:(a) Prepare a statement showing the budgeted net profit or loss for the year ending 31 May 2019. Some time ago the government of Hartland, which actively promotes environmental initiatives, announced its intention to open an academy comprising an equine college and riding school. The management of EMA are uncertain of the impact that this will have on the budgeted number of students and riders during the year ending 31 May 2019, although they consider that due to the excellent reputation of the instructors at the riding school, capacity utilization could remain uncharged or even increase, in spite of the opening of the government funded academy. Current estimates of the number of students entering the academy and the average capacity utilization of the riding school are as follows:

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(b) (i) Prepare a summary table which shows the possible net profit or loss outcomes, and the combined probability of each potential outcome for the year ending 31 May 2019. The table should also show the expected value of net profit or loss for the year;(ii) Comment briefly on the use of expected values by the management of EMA;(iii) Suggest three reasons why the government of Hartland might have decided to open an academy comprising an equine college and a riding school.

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