CVP, sensitivity analysis. Hoot Washington is the newly elected charismatic leader of the Western Party. He is the darling of the right-wing media. His “take no prisoners” attitude has left many an opponent on a talk show feeling run over by a Mack truck.

Media Publishers is negotiating to publish Hoofs Manifesto, a new book that promises to be an instant bestseller. The fixed costs ofproducing and marketing the book will be $600,000. The variable costs of producing and marketing will be $4.80 per book. These costs are before any payments to Hoot. Hoot negotiates an up-front payment of$3.60 million plus a 15 % royalty rate on the net sales price of each book. The net sales price is the listed book store price of $36 minus the margin paid to the book store to sell the book. The normal book store margin of 30% ofthe fisted book store price is expected to apply.

Required 1. Present a PV graph for Media Publishers.

2. How many copies must Media Publishers sell to

(a) break even and

(b) earn a target operat¬

ing profit of $2.4 million?

3. Examine the sensitivity of the breakeven point to the following changes:

a. Decreasing the normal bookstore margin to 20% ofthe listed book store price of $36

b. Increasing the fisted book store price to $48 while keeping the book store margin at 30%

Comment on the results.