Doris M. Bradley has invested $1,200,000 in a small (280-seat) theatre. All of this moneyshould be considered her investment. She would like to see a 10% after-tax return on her investment in the coming year. Doris faces a personal tax rate of 38%. She expects the theatre seats to be sold at a 75% capacity on average, and that in this year the theatre will be open on 130 nights.

There are many costs involved in running a theatre. Estimates indicate that variable costs will use 70% of the revenue earned by the theatre.

Fixed costs would be:

Salaries$420,000

Insurance. 40,000

License 15,000

Utilities 110,000

Also, depreciation on the theatre building itself would be 10% of the buildings $800,000 current book value.

Part of Doris' investment (included in the $1,200,000 mentioned above) in the theatre came through a bank loan of $250,000, on which she will be paying 5% interest this year.

REQUIRED:

1. 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 Doris' expected after-tax return. (10 marks)
2. Now that revenue has been calculated, please work out the tranche pricing for Doris, using the following data:

280 seats, selling at 75% capacity, open for 130 nights in the coming year, as stated above.

Tranches:

Tranche 1, paying 100% of top price..20% of tickets

Tranche 2, paying 65% of top price..42% of tickets

Tranche 3, paying 40% of top price.. the remaining tickets

(10 marks)