The City of Mirada wants to offer cable television to its residents in 2012. The city has approached a company called CableVision to run its cable operations. After negotiating with key parties, CableVision has made the following agreements:
Mirada will offer its residents a basic set of 25 cable television stations at a rate of $32.49 per month (all of the revenue will go to CableVision).
The City of Mirada will maintain the physical facilities, and CableVision will pay the city $105,000 per month plus $4.00 per cable subscriber per month.
CableVision will actually pay another company to broadcast the 25 channels and will pay this company an annual fixed fee of $730,000 plus a monthly amount of $7.75 per cable subscriber per month.
CableVision will incur additional operating costs for billing, program news mailings, etc. These costs will include a fixed component of $110,000 per month, and a variable component of 9.0% of monthly revenue.
CableVision has several questions about its monthly revenues, costs, and profits in 2012.
1. What is CableVision's estimated monthly operating income if 18,000 residents subscribe?
2. How many monthly subscribers would be required for CableVision to break even in 2012?
3. How many monthly subscribers would be required for CableVision to earn $23,000 per month in 2012?
4. Assuming a tax rate of 30%, what must revenue be in order for CableVision to earn $23,000 per month in 2012?