Question

Mountain Water Park is planning their budget for the year. Owners would like to earn a 15% return on the company's $500,000 of assets. Fixed costs are budgeted to be $250,000 for year. 200,000 total daily visits are expected each year. Varlable costs are about $10 per daily visit. Mountain Water Park has a favorable reputation in the area given the great mountain views and thriling waterslides and therefore, has some control over the price of admission. Visitors pay single admission fee for a day's worth of access to the park.

Based on their budget and goals, how much should they charge per daily admission ticket? Round your answer to the nearest cent (e.g., 1.23).

Answer 1

To achieve a 15% return on assets and cover all costs, Mountain Water Park should charge $11.63 per daily admission ticket.

Step-by-step explanation:

To determine how much Mountain Water Park should charge per daily admission ticket, we need to first calculate the required total revenue to achieve a 15% return on the company's $500,000 of assets. The desired return is 15% of $500,000 which equals $75,000. Adding this to the fixed costs of $250,000, we get the total required revenue to cover both fixed costs and the desired return, which is $325,000.

Since variable costs are $10 per daily visit and there are expected to be 200,000 daily visits for the year, we multiply the variable cost per visit by the total number of visits to get the total variable cost, which is $10 × 200,000 = $2,000,000. Adding the total variable costs to the total required revenue to cover fixed costs and desired return, we have $325,000 + $2,000,000 = $2,325,000 in total revenue needed for the year. To find the admission fee per visit, we divide this total revenue by the number of visits, resulting in an admission fee of $2,325,000 ÷ 200,000 = $11.625 per visit. Rounding to the nearest cent, Mountain Water Park should charge $11.63 per daily admission ticket.