Bryan Bessner has invested $900,000 in a small theatre. He would like to see a 6% after-tax return on his investment this year. Bryan faces a personal tax rate of 42%.

There are many costs involved in running a theatre. Estimates indicate that variable costs will use up 64% of the revenue earned by the theatre.

Fixed costs would be:

Salaries$672,000

Insurance. 40,000

License 18,000

Utilities 28,000

Also, depreciation on the theatre building itself would be 10% of the buildings $1,200,000 book value.

Part of Bryans investment in the theatre was used to buy equipment this year, costing $200,000. This equipment depreciates by 20% per year.

Part of Bryans investment in the theatre came through a bank loan of $150,000, on which he will be paying 8% interest this year.

REQUIRED:

a. Please calculate the total amount of revenue that this theatre will need to earn this year, in order to meet all costs and allow for Bryans expected after-tax return. Show your work. (more space next page)

(7 marks)

b. If the theatre has 250 seats, and Bryan expects it to be open 4 nights per week for 48 weeks of the year, find the average seat price that must be charged in order to reach the revenue goal you calculated in part a above. Assume that on average, only 80% of seats can be sold each night. (Just divide your total revenue by the total number of seats they expect to sell over the whole year.)