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Alltel Pavilion Case

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The next question is, what is the maximum fixed fee that you can pay the KSFB Allstars if the you to earn $45,000 of operating income after taxes with a tax rate of 40% and the show has an average ticket price of $22.12 and the show is expected to draw 6,000 paying ticketholders. First, we find the operating income before taxes. You find this by taking the desired ending operating income by one minus the tax rate. In this case, the total operating income you want is $75,000. By plugging the numbers into the formula provided, you find that the highest fixed fee you can allow is $59,630. This is due to the low ticket sales. 45,000/(1-.4) = 75,000 | EQUATION: | 37.03 * Q + (10.04 * .25Q) = Fixed costs + Fixed fee + Desired ending Operating income | 37.03 * 6,000 + (10.04 * .25) * 6,000 = 102,610 + X +75,000 | X = $59,630 | Next, we need to find the maximum fixed fee that you can pay the KFBS Allstars assuming you want to earn $45,000 after 40% tax and you expect the show to have an average ticket price of $22.12 and the show is expected to sell out. Like the last example, we find the desired operating income. $45,000 divided by 60% is equal to $75,000. Now we can use our equation again. Plugging in the numbers, we find the answer is $428,040. 45,000/(1-.4) = 75,000 | Equation: | 37.03 * Q + (10.04 * .25Q) = Fixed costs + Fixed fee + Desired ending Operating income | 37.03 * 15,000 + 10.04 * 5,000 = 102,610 + X +75,000 | X = 428,040 |

Now we want find the max per capita fee that you can pay the KFBS Allstars if you want to earn $180,000 after 40% tax from an average ticket price of $22.12 per ticket, and the show is expected to be a sellout. Once again, this problem is similar to the two above it. You find the operating income before taxes, $300,000. Then you plug the numbers into the formula, only this time the comp tickets are only 2.5% of…...

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