1. Denver doughnuts is considering a new store location. For accounting purposes, fixed operationg costs for a store are $23,500 a year, and variable costs are 40% of sales. Compute the break-even sales level for a store location.

a) if average revenue per customer is $1.40, how many customers must be served each hour to break even in earnings? (The stores are open 24hrs a day, 365 days a year)

b) If the price (only) is raised 10%, what wil;l be the new earnings break-even point?

2. For Denver Doughnuts, fixed cash outlays are $18,750 a year at each location, and variable cash outlays are 40% of sales. A store requires an initial outlay of $60,000, and the company uses a 14% required return. Because of changing neighborhood characteristics, the company does its analysis based on a 10 year store life. Since the locations are leased, the terminal value is minimal. Ignore taxes for simplicity.

a) what annual sales volume will be needed to generate a net present value of $0?

b) the after tax risk-free interest rate is 6%. what annual sales value will be needed to generate a net present value of $0 using a 6% discount rate?