Question

In the fall of 20X1, eight wealthy businesspeople from the same ethnic background formed a committee (CKER committee) to obtain a radio license from the Canadian Radio- Television and Telecommunications Commission (CRTC). Their goal is to start a not- for- profit, ethnic community radio station for their area. They plan to call the station CKER–FM Ethnic Radio (CKER). It will broadcast ethnic music, news and sports from their country of origin, cultural information, ethnic cooking, and other such programs, seven days a week.
The station’s capital requirements are to be financed by memberships, donations, and various types of loans. It is expected that the ongoing operations will be supported by advertising paid for by businesspeople from that ethnic community and by the larger business community targeting that ethnic audience, as well as by donations and memberships.

Required
Prepare the draft report.
Exhibit F Information on Station Start-Up
1. Costs to date have totaled $ 50,000 and are mostly transportation and meeting costs, as well as postage. These costs have been paid for personally by the CKER committee members. 2. To approve the license application, the CRTC must see written commitments to finance the station’s start-up costs and operating losses in the first two years. Remaining costs to obtain the license, excluding donated legal work, are expected to be about $ 8,000, and will be paid by CKER committee members.
3. If the CRTC approves the license application, the CKER committee will immediately set up a not- for- profit organization and apply to the Canada Revenue Agency (CRA) for charitable status, which it will likely receive.
4. Fairly exhaustive efforts to obtain commercial financing have failed. As a result, four wealthy individuals have volunteered to provide CKER with the financing for the start-up. They will each personally borrow $ 25,000 from financial institutions and give the funds to the station. These individuals expect the loan to be cost- free to them, as the station will make the interest and principal payments.
5. A “Reverse Lifetime Contribution” program will be instituted. Under this program a donor will pay the station a capital sum of at least $ 50,000. The station can do whatever it wants with the funds, but it will repay the donor an equal annual amount calculated as the capital sum divided by 90 years less the individual’s age at the time of contribution. Upon the death of the donor, the station will retain the balance of the funds. Currently, a 64- year- old station supporter has committed $ 78,000, and seven other individuals are considering this method of assisting the station.
6. Initially the station is to broadcast with a 2,500- watt signal. Within three to four years it hopes to obtain commercial financing for a second transmitter that will boost the power of the signal and the broadcast range.
Exhibit G Other Information About Plans for the Station
1. The CKER committee has analyzed census and other data to determine the potential market for the station. Engineering studies have mapped out the area that will be covered by the broadcast signal. There are about 1.1 million people in the target listening area. The latest Canadian census shows that 14% of the population comes from the target ethnic group. By applying a conservative factor of 40% to these findings, the CKER com-mittee has arrived at a listenership figure of about 5.6% or about 62,000 people. The CKER committee has found that about one in five of the businesses in the area are run by members of the ethnic community, many of whom would like a medium for reaching their own people through direct advertising.
2. The amount of time expected to be devoted to commercials per hour is four minutes in year one, five minutes in year two, and six minutes in year three. Advertising cost per minute, discounted to 25% below the current market rate, will be:
Prime time (6 hours a day)................................................................................................. $ 40
Regular time (10 hours a day) .......................................................................................... $ 30
Off-peak (8 hours a day) ................................................................................................. $ 25
Advertising time will be sold by salespeople whose remuneration will be a 15% commission.
3. Miscellaneous revenue from renting out the recording studio when not in use by CKER could approach $ 3,000 per month in year three, but will start out at about $ 2,200 per month.
4. At least 120 people have committed to pay a $ 125 annual membership fee. Membership carries no special privileges other than to be identified as a supporter of the station. Membership is expected to grow by 20% per year.
5. Start-up capital expenditures are as follows: transmission equipment $ 61,000; broadcast studio equipment $ 62,000; and production studio equipment $ 40,000. Administration and other costs, including rent, are expected to total about $ 1,237,000 per year and will not increase when advertising sales increase.
6. The committee believes that there are no GST implications related to running the station, since it is a not-for-profit venture.
7. About one- third of the person- hours needed to run the station are expected to come from volunteers.



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  • CreatedMarch 13, 2015
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