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QUESTION 27 a 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
QUESTION 27 a 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.. 15,000 110,000 Utilities. Also, depreciation on the theatre building itself would be 10% of the building's $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 a. Please calculate the total amount of revenue that this theatre will need to earn this year, in order to me all costs and allow for Doris' expected after-tax return. (10 marks) b. 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)
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