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 years operations of the two firms he is considering and give him some business advice.

	Company Name
	Larson				Benson
Variable cost per unit (a)	$	19.00			$	9.50
Sales revenue (8,900 units $30.00)	$	267,000			$	267,000
Variable cost (8,900 units a)		(169,100	)			(84,550	)
Contribution margin	$	97,900			$	182,450
Fixed cost		(24,100	)			(108,650	)
Net income	$	73,800			$	73,800

Required

Use the contribution margin approach to compute the operating leverage for each firm.

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.)

A. Company Name

	Larson	Benson
Operating leverage

	Company Name
	Larson		Benson
Variable cost per unit	$19.00		$9.50
Sales revenue
Variable cost
Contribution margin
Fixed cost
Net income
Percentage change		%		%