Here is what it would cost you to fulfill your long-time ambition to own and operate a ski resort:

To acquire theland$2,000,000

To acquire the skilift$1,000,000

To acquire ashelter$200,000

To operate the lift and sell thetickets$500 per hour

You plan to be open 50 hours per week for 20 weeks in the year.You therefore anticipate operating costs of $500,000 per year.You would be able to borrow $3,200,000 you need to get started under a 20-year loan.Your annual payments on the loan (principal and interest) will come to $430,000 per year. Assume no other costs.

a.What is the minimum amount of annual revenue from the sale of lift tickets that you will have to anticipate in order to take the plunge and invest $3,200,000?

b.Suppose your actual revenue in the first year of operation turns out to be $600,000.Should you go out of business?

c.You can occasionally earn $6,000 by opening your resort for 8 hours on weekdays (when you would ordinarily be closed) for the benefit of special charter groups. This revenue will cover your operating costs of $4,000 for the day (8 hours * $500/hr); but since you r operating costs are only 54% of your total costs, you would need about $7,500 in revenue to make it worth your while to open.Or would you?

d.If you spend $100,000 a year on advertising in your second year, and as a result increase your total revenue to $750,000, was the decision to advertise a good one?