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You are a bank loan officer. Dan has approached you for a loan for his business. He has two mutually exclusive proposals with different
You are a bank loan officer. Dan has approached you for a loan for his business. He has two mutually exclusive proposals with different cost structures: Under Proposal A, fixed costs are $1.5 million per year and CM Ratio is 60%. Under Proposal B, fixed costs are $750K per year and CM Ratio is 30%. (a) (b) Suppose Dan estimates revenue of $2.75 million per year under both proposals. For each proposal, calculate Dan's profit, MOS and operating leverage. Which proposal would you support as bank loan officer? Suppose Dan estimates revenue of $4.50 million per year under both proposals. For each proposal, calculate Dan's profit, MOS and operating leverage. Which proposal would you support as bank loan officer?
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