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Brattain Sports is considering whether or not to launch its new gravity free treadmill. Marketing research says the new B-Free will sell 1,200 units per
Brattain Sports is considering whether or not to launch its new gravity free treadmill. Marketing research says the new B-Free" will sell 1,200 units per year. The selling price will be $2,000 per unit. The variable costs per treadmill will be 40% of selling price, and fixed costs will be $300,000 per year. The total investment needed to undertake the project is $1,500,000. This amount (1) will be depreciated straight-line to zero over the three-year life of the equipment. The salvage value is zero, and there are no working capital consequences. The company has a 24 percent required return on new projects. At 24 percent, the three-year annuity factor is 1.9813, so the project has a zero NPV when the present value of the operating cash flows equals the $1,500,000 investment. Because the cash flow is the same each year, we can solve for the unknown amount by viewing it as an ordinary annuity. What is the Degree of Operating Leverage (DOL) at 750 units? (Ignore Taxes) 2.56 1.66 O 1.56 O 1.50 2.66
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