ALL ANSWERS MUST INCLUDE WORK AND/OR EXPLANATION FOR ANY CREDIT.

Amtrack operates train routes all over the United States. They are considering a new route from Rocky Mount, NC to Washington, D.C. All seats will be business class and they are needing to make some decisions.

Their financial analyst has estimated that the cost for this route will be as follows:

Number of seats in each passenger car 50 Average load factor (% of seats filled) 80% Average passenger fare $120 Average variable cost per passenger $40 Fixed operating cost per month $2,400,000

1) What is the break-even point in passengers (BEP) and revenues per month on this route (Round CM% to the nearest 10th of a percent (i.e., 12.25%) and BEP to the nearest dollar)?

2) What is the break-even point in number of passenger train cars per month (round to the nearest whole unit)?

3) If Amtrack raises the average passenger fare to $150, it is estimated that the average load will decrease to 60%. What will be the monthly break-even point in the number of passenger cars (round to the next whole unit, you can't have 40% of a car).

4) (Refer to original data). Fuel cost is a significant variable cost to any railway. If crude oil rises by $12 per barrel, it is estimated that variable cost per passenger will rise to $50. What would be the new break-even point in passengers and in number of passenger train cars? (round to the next whole unit because you can't have just a portion of a car).

5) Amtrack has experienced an increase in the variable cost per passenger to $60 and an increase in total fixed cost to $3,000,000. Amtrack has decided to raise the average fare to $170. If the tax rate is 40%, how many passengers per month are needed to generate an after-tax profit of $1,000,000? (round to the nearest whole dollar and round up to the next whole unit).

6) (Use the original data). Amtrack is considering offering a discounted fare of $80, which they believe would increase the average load to 90%. However, only the additional seats would be sold at the discounted fare. Additional, monthly advertising cost would be $125,000. How much pre-tax income would the discounted fare provide, if Amtrack has 50 passenger train cars per day, 30 days per month?

7) Amtrack has an opportunity to obtain a new route that would be traveled 20 times per month with 3 cars. Amtrack believes it can sell seats for $125 on the route, but the load factor would only be 70%. This route would incur fixed costs of $200,000 per month for the additional crew, additional passenger train cars, maintenance and so, on. Variable cost per passenger would remain $40.

a. Should Amtrack purchase this route? Why or Why not?

b. How many passenger train cars must Amtrack operate to earn pre-tax income of a minimum of $85,000 per month on this route (round to a whole unit).

c. If the load factor could be increased to 75%, how many passengers train cars must be operated to earn a pre-tax income of a minimum of $85,000 per month on this route? (round to a whole unit).