Service business cable TV. Cable Vision has been approached by the city of Mirada

(population 800,000) to run its cable television operations. Mirada city officials have become tired of reporting losses on the cable television company they have operated for the past five years. Cable Vision currently operates cable television facilities for over 100 other cities or counties.

Cable Vision ma es the following assumptions in its planning after negotiations with key parties:

a. A basic stt of 10 cable television stations will be offered at a rate of $20 per month per subscriber. ~hese 0 stations inch, sports channel, a news channel, and other general- audience channels.

b. The city of Mirada would retain ow -hip of the physical facilities and would maintain the i in working condition. Under a sing agreement, Cable Vision will pay the city of Mirada $50,000 per month plus 10% he monthly revenues from the first 10,000 sub- scribers and 5% of the month! v reveni. from additional subscribers.

c. Cable Vision will receive the 10 channels u > r>asic service from Interlink Cable; Interlink acts as an intermediary between cable I v. ->n stations and companies such as Cable Vision, which sell to individual subscribe 5. 1. erlink charges a monthly fixed ree of S20,000 plus a monthly charge of $8 pa sub - the first 20.000 subscribers and S6 per additional subscriber.

d. Cable Vision estimates its own operating costs to include both a fixed and a variable component. The fixed component is S60,000 per month. The variable component is S2 per month per subscriber (to cover monthly billing, program news mailings, and so on).
Required 1. How does the contribution margin per subscriber behave over the 0 to 30,000 subscriber range?
2. Calculate the breakeven number of subscribers per month for Cable Vision.
3. What is the operating income per month to Cable Vision with

(a) 10,000 subscribers, (b)
20,000 subscribers, and

(c) 30,000 subscribers? Comment on the results.
4. You are hired by Cable Vision to give a second opinion on the reliability of the estimate of a breakeven point in requirement 2 above. What seems most certain in Cable Vision's pro- jected costs? What concerns might you have?