Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Passive Income The Passive Income Millionaire

Authors: Alexus Arellano

1st Edition

9814950882, 978-9814950886

More Books

Students also viewed these Finance questions