Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $800,000 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. Company Name Larson Benson Variable cost per unit (a) 16.00 $ 7.00 Sales revenue 8,000 units $25) $ 200,000 $200,000 Variable coat (8,000 units x a) [128,000) (56,000) Contribution margin $72,000 $144,000 Fixed cost (24,000) (96,000) Set income $ 40,000 $48.000 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 10 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 10 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.) Complete this question by entering your answers in the tabs below. Required A Required B Required Use the contribution margin approach to compute the operating leverage for each firm. (Round your answers to 2 decimal Larson Company Name Operating leverage Benson Required > Arnold Vimka Is a venture capitalist facing two alternative Investment opportunities. He intends to invest $800,000 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 (8,000 units x $25) Variable cost (8,000 units * al Contribution margin Fixed cost Net income Company Name Larson Benson $ 16.00 $ 7.00 $ 200,000 $200,000 (128,000) (56, 000) $ 72,000 $144,000 (24,000) (96,000) 48,000 $ 48,000 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 10 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 10 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.) Complete this question by entering your answers in the tabs below. Required A Required B Required c If the economy expands in coming years, rson and Benson will both enjoy a 10 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.) (Negative values should be indicated with a minus sign.) Show less Company Name Larson Benson Vanable cost per unit Sales revenue Variable cost Contribution margin Foxed cost Net Income Percentage change Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $800,000 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 The unita) Sales revenue (8,000 units 525) Variable coat (0.000 units a) Contribution margin Fixed cost Net Income Company Name Larson Benson 16.00 5 7.00 $ 200,000 $200,000 (128, 000) (56,000) 5 72,000 $144,000 124, 000) (96, 000) 540,000 $ 40,000 Required .. 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 10 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 10 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.) Complete this question by entering your answers in the tabs below. Required A Required B Required c If the economy contracts in coming years, Larson and Benson will both suffer a 10 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.) (Negative values should be indicated with a minus sign.) Show less Company Name Larson Benson Vanable cost perunt Sales avenue Variable cost Contribution margin Fixed COS Net income Percentage change
