REQUIRED Requirements: 1. How would you describe the competitive strategy of Walnut Creek amphitheatre? Given the firm's strategy, what are the most important Key Performance Indicators (e.g., quantitative measures) for Walnut Creek to track and manage if it is to achieve its goal of continuous annual growth in operating income? 2. Complete the following two cost-volume-profit analyses for the show illustrated in Exhibit 2, the KFBS Allstars: a. How many tickets must Walnut Creek sell to break even? (Hint: don't ignore the possibility that the attendance of Comp ticket holders affects the concert's profitability). i. Do you think that it is likely that Walnut Creek will break even? Briefly explain. ii. Given your estimated breakeven point in units, compute the Margin of Safety (MOS) in units. Briefly comment on the MOS result. b. How many tickets must Walnut Creek sell to earn $30,000 operating income after taxes, assuming a 40 percent tax rate? Is it reasonable to assume this level of operating income will be achieved? Briefly explain. 3. What should be the average ticket price (for all ticket types combinedA through D) for the KFBS concert if the fixed-pay fee is $200,000 (rather than $160,635) and Walnut Creek expects to sell 7,000 tickets and wants to earn $30,000 operating income after 40 percent in taxes? After you estimate the average ticket price for all ticket types combined (which is $22.12 for the situation depicted in Exhibit 2), estimate the price for each type of seat (i.e., in Exhibit 2: A--$36.29, B--$22.22, C--$11.31, D--$4.92). [Hint: assume sales mix for A, B, C, and D seats remains the same as the mix in the Flash Report (Exhibit 2).] 4. Negotiating the talent fee for the KFBS Allstars is an important strategic decision for Walnut Creek management. Perform the following two independent scenario analyses regarding different talent fee arrangements. Then comment briefly on what the results of your two scenario analyses suggest regarding whether Walnut Creek is better off negotiating a "fixed-pay" contract with performers or a "per capita" contract with performers: a. What is the maximum fixed fee that Walnut Creek can pay KFBS Allstars if Walnut Creek wants to earn $45,000 operating income after 40 percent tax and still expects the show to have an average ticket price of $22.12? Assume, including the same 25 percent comp tickets (i.e., 4:1 mix as before), the show is expected to be a sell-out. b. Independent of (a), what is the maximum per capita fee (see p. 557 of the case for the reference of the 2.5 percent comp tickets at per capita shows) that Walnut Creek can pay the KFBS Allstars, whose concert is expected to be a sellout, if the Pavilion wants to earn $180,000 operating income after 40 percent tax from an average ticket price of $22.12 per ticket? 560 Blocher and Chen Issues in Accounting Education 5. Walnut Creek management examined the results of the scenarios examined in requirement 4 and subsequently held additional discussions with Walnut Creek's marketing team. The biggest uncertainty for Walnut Creek concerns the number of paying ticket patrons for lesser known performers. As a result, Walnut Creek management believes that the two most likely contract structure scenarios it will face when negotiating contracts with lesser known performers (i.e., bands) will be as follows. The first structure is per-capita in nature (Alternative 1) and would pay the performer a fee of $20 per paid ticket holder. The second structure is fixed in nature (Alternative 2) and would pay the performer a flat fee of $250,000. a. Assuming the same other relevant information from the case, calculate the indifference point for these two fee contract structures. Be sure to SHOW YOUR CALCULATIONS. Briefly explain what this indifference point means. b. What profit is earned by Walnut Creek at this indifference point? Be sure to SHOW YOUR CALCULATIONS. c. Walnut Creek's marketing team estimates that it will be able to sell 10,000 tickets for the hot new bandThe Don't Suck. Explain which contract structure Walnut Creek should pursue with The Don't Suck band negotiations and WHY this particular structure is best for Walnut Creek. 6. What role does CVP analysis and operating leverage play in contract negotiations with different types of performers (fixed-fee or per capita)? 7. The results of CVP analyses are extremely useful for decision making. However, they also are highly dependent upon the assumptions used to generate the inputs into the CVP analyses. Preferably using an Excel spreadsheet (although you may simply use paper instead if you so desire), rerun the following two CVP analyses but take into account the sensitivity changes (i.e., changes in key assumptions) described below: a. The break even analysis for requirement 2a: Assume now that the number of comp tickets in a fixed-fee concert is only 10 percent (rather than 25 percent as on p. 557 of the case). What is the break even point in units given this change? b. The maximum fixed-fee that Walnut Creek can pay in requirement 4a: Assume now that after the KFBS Allstar show is arranged (i.e., can't be moved or canceled), another unexpected big event becomes scheduled for the same evening as the KFBS Allstar show (e.g., Presidential debate, the Oscars, Cubs in another World Series Game 7, etc.). As a result, assume that the KFBS Allstar show draws only 3,000 paying ticket holders. What is the maximum fixed-fee that Walnut Creek can pay given this change? c. Explain any insights that the analyses in parts (a) and (b) revealed regarding the use of CVP for Walnut Creek's strategic decision making.