Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $60,000, and variable costs equal to one-third of revenue.

Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $60,000, and variable costs equal to one-third of revenue.

a. What are expected profits based on these expectations? (Round your answer to nearest whole number.)

b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits? (Round your answer to 2 decimal places.)

c. If sales are 10% below expectation, what will be the percentage decrease in profits? (Round your answer to nearest whole number.)

e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative? (Round your answer to 1 decimal place.)

f. What are break-even sales at this point? (Round your answer to nearest whole number.)

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

Behavioral Finance

Authors: Edwin Burton, Sunit N. Shah

1st Edition

111830019X, 978-1118300190

More Books

Students also viewed these Finance questions

Question

What are the HRM implications of this type of merger?

Answered: 1 week ago

Question

What is an RPIC, and where was it required?

Answered: 1 week ago