Use the Information Below to Answer the Following Question(s)

question 208

Multiple Choice

Use the information below to answer the following question(s) :
Rosemont Tennis is planning for the coming year. Investors would like to earn a 12% return on the company's $25 million of assets. The company primarily incurs fixed costs to maintain the tennis courts. Fixed costs are projected to be $12,500,000 for the year. About 500,000 court time hours are expected to be played each year. Variable costs are about $5 per hour of court time.
-If Rosemont Tennis is a price-taker and won't be able to charge more than its competitors who charge $32.50 per hour of court time. What profit will it earn in terms of dollars?

• A) $1,250,000
• B) $(12,500,000)
• C) $6,250,000
• D) $(1,250,000)

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Definitions:

Growth Opportunities

Prospects or opportunities for a business or investment to expand, leading to increased profits.

Homemade Dividend

A concept where investors sell a portion of their portfolio to create cash flow, as an alternative to receiving dividends from investments.

Dividend Policy

Dividend policy is the set of guidelines a company follows in deciding how much of its profit will be distributed to shareholders as dividends and how much will be reinvested in the business.

New Equity

New equity refers to funds raised by a company through the issuance of additional shares of stock.