Garner Strategy Institute (GSI) presents executive-level training seminars nationally. Eastern University (EU) has approached GSI to present 40 one-week seminars during 2019. This activity level represents the maximum number of seminars that GSI is capable of presenting annually. GSI staff would present the week-long seminars in various cities throughout the United States and Canada.

Terry Garner, GSI€™s president, is evaluating three financial options for the revenues from Eastern: accept a flat fee for each seminar, receive a percentage of Eastern€™s profit before tax from the seminars, and form a joint venture to share costs and profits. Estimated costs for the 2019 seminar schedule follow:

EU plans to charge $1,200 per participant for each 1-week seminar. It will pay all variable marketing, site, and materials costs.

Required

1. Assume that the seminars are handled as a joint venture by GSI and EU to pool costs and revenues.

a. Determine the total number of seminar participants needed to break even on the total costs for this joint venture.

b. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $169,400?

2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU. EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU€™s profit before taxes from the seminars. Compute the minimum number of participants needed for GSI to prefer the 40% fee option over the flat fee. (Round your answer up to the nearest whole number.) Show supporting computations.

3. What are the strategic and implementation issues for GSI to consider in deciding whether to enter into the joint venture?

Transcribed Image Text:

Eastern University Garner Strategy Institute Fixed costs for the year: $200,000 48,000 Salaries and benefits N/A Facilities N/A $210,000 Travel and hotel Other 70,000 $318,000 N/A $210,000 Total fixed costs Variable cost per participant: Supplies and materials Marketing $47 18 Other site costs 35