Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however,
Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's operations of the two firms he is considering and give him some business advice. Variable cost per unit (a) Sales revenue (8,900 units $30.00) Variable cost (8,900 units xa) Contribution margin Fixed cost Net income Company Name Benson Larson $ 21.00 $10.50 $267,000 $267,000 (186,900) $ 80,100 (24,700) (93,450) $173,550 (118,150) $ 55,400 $ 55,400 ces Required a. Use the contribution margin approach to compute the operating leverage for each firm. b. If the economy expands in coming years, Larson and Benson will both enjoy a 11 percent per year increase in sales, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note Since the number of units Increases, both revenue and variable cost will increase.) c. If the economy contracts in coming years, Larson and Benson will both suffer a 11 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note Since the number of units decreases, both total revenue and total variable cost will decrease.) Variable cost per unit (a) Sales revenue (8,900 units x $30.00) Variable cost (8,900 units x a) Contribution margin Fixed cost Net income Company Name Benson 21.00 $ 10.50 Larson $ $ 267,000 (186,900) $ 80,100 (24,700) $ 55,400 $ 267,000 (93,450) $ 173,550 (118,150) $ 55,400 Complete this question by entering your answers in the tabs below. Required A Required B Required C Use the contribution margin approach to compute the operating leverage for each firm. (Round your answers to 2 decimal places.) Company Name Operating leverage Larson Benson Required A Required B > Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net income Percentage change $ 69 Company Name Larson Benson 21.00 $ 10.50 % % Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net income Company Name Larson Benson $ 69 21.00 $ 10.50 Percentage change % %
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started