The TKR franchise is looking to estimate its after-tax profits for the coming season. One of their loyal fans have built a basic CVP model and you are given the following information: Stadium seating capacity per game 40,000 Games per season 54 Average percentage seats sold per game 85% Selling price per ticket Box seats $150.00 General Admission $60.00 Sales Mix Assumption Box seats 20% General Admission 80% Variable cost per ticket $20 Fixed facility cost per season $5,500,000 After-tax target profit $4,000,000 Average tax rate 20%
a. What is the estimated after-tax profit for the season? (Use the model on the course page)
b. If TKR should make it to the playoffs they would have an additional 5 home games and increased interest would increase average percentage seats sold per game to 88%. What is the financial impact of not making the playoffs?
c. The franchise owner is interested in increasing stadium capacity by spending $2,000,000 to build more box seats. This would increase the stadium capacity by 500 and would change the sale mix assumption to box seats 25% and general admission 75%. If they desire to recoup the investment in 5 years should they undertake this investment?