operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season.

Investors would like to earn a 10% return on investment on thecompany's $260,900,000 of assets. WinterRuns projects fixed costs to be $30,000,000 for the ski season. The resort serves about 710,000 skiers and snowboarders each season. Variable costs are about $10 per guest. Lastyear, due to its favorablereputation, WinterRuns was aprice-setter and was able to charge $5 more per lift ticket than its competitors without a reduction in the number of customers it received.

Assume that WinterRuns' reputation has diminished and other resorts in the vicinity are charging only $84 per lift ticket. WinterRuns has become aprice-taker and will not be able to charge more than its competitors. At the marketprice, WinterRuns managers believe they will still serve 710,000 skiers and snowboarders each season.

Requirements

1. If WinterRuns cannot reduce itscosts, what profit will itearn? State your answer in dollars and as a percent of assets. Will investors be happy with the profitlevel?

Complete the following table to calculate WinterRuns' projected income.

Revenue at market price _______

Less: Total costs _______

Operating Income ________

2. Assume WinterRuns has found ways to cut its fixed costs to $27,500,000. What is its new target variable cost perskier/snowboarder?