Reference no: EM132588470

Question - A parasailing company that is expanding operations to a new beachfront location needs to make a 3-year analysis for the bank that may loan the funds to purchase boat and parasailing equipment. A lot of business is done on a referral basis, where a company pays a fee to a 3rd party to send them customers. However, because of the well-established reputation, company already have received requests for "flights" to be scheduled as soon as they open the new location. Therefore, expect to break-even the first year but must calculate the number of flights needed. also determine the new break-even point in Year 2 if the location allows referrals, which will cost on average about 2% of the sales price overall. Finally, determine the volume needed to have $10,000 in profit in Year 3. The following information is available:

Sales price per flight $175

Estimated loan payment per month $350

Fuel costs per flight $100

Full-time scheduler salary $2,500 per month

Boat crew per flight $30

$500 per month dock fee and use of a small office on a pier

Requirements -

Calculate the Year 1 break-even quantity, contribution margin, and contribution margin ratio. Explain how the values were determined.

Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio. Explain how the values were determined.

Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.

Recommend if the bank should issue the loan.