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FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pretend your company won a license to build a U.S. cellular system (the application cost for the license was only $500!). Your license is to cover 140 square km. ASsume a base station costs $500,000 and a MTSO costs $1,500,000. An extra $500,000 is needed to advertise and start the business. You have convinced the bank to loan you $6 million, with the idea that in four years you will have earned S10 million in gross billing revenues, and will have paid off the loan. (a) How many base stations (i.e., cell sites) will you be able to install for $6 million? (b) Assuming the earth is flat and subscribers are uniformly distributed on the ground, what assumption can you make about the coverage area of each of your cell sites? What is the major radius of each of your cells, assuming a hexagonal mosaic? (c) Assume that the average customer will pay $50 per month over a four-year period. Assume that on the first day you turn your system on, you have a certain number of customers which remains fixed throughout the year. On the first day of each new year, the number of customers using your system doubles and then remains fixed for the rest of that year. What is the minimum number of customers you must have on the first day of service in order to have earned $10 million in gross billing revenues by the end of the 4th year of operation? (d) For your answer in (c), how many users per square km are needed on the first day of service in order to reach the $10 million mark after the 4th year?
Transcribed Image Text:Pretend your company won a license to build a U.S. cellular system (the application cost for the license was only $500!). Your license is to cover 140 square km. ASsume a base station costs $500,000 and a MTSO costs $1,500,000. An extra $500,000 is needed to advertise and start the business. You have convinced the bank to loan you $6 million, with the idea that in four years you will have earned S10 million in gross billing revenues, and will have paid off the loan. (a) How many base stations (i.e., cell sites) will you be able to install for $6 million? (b) Assuming the earth is flat and subscribers are uniformly distributed on the ground, what assumption can you make about the coverage area of each of your cell sites? What is the major radius of each of your cells, assuming a hexagonal mosaic? (c) Assume that the average customer will pay $50 per month over a four-year period. Assume that on the first day you turn your system on, you have a certain number of customers which remains fixed throughout the year. On the first day of each new year, the number of customers using your system doubles and then remains fixed for the rest of that year. What is the minimum number of customers you must have on the first day of service in order to have earned $10 million in gross billing revenues by the end of the 4th year of operation? (d) For your answer in (c), how many users per square km are needed on the first day of service in order to reach the $10 million mark after the 4th year?
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