60.1K

Verified Solution

Link Copied!

6 Arnold Vinka 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. 5 Benson 12.00 $200,000 3 ann LE Variable cost perut (a) sales revenue (0.000 units - $25) 200,000 Variable coat 10.000 units a 120.000 Contribution wargi $ 72,000 Tiedot 120.000 et income $ 28,000 3140,000 196.000 $ 48,00 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. Requirea 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 places.) Company Name Larson Benson Operating leverage KRA Required B > Complete this question by entering your answers in the tabs below. Required a Required B Required 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) (Negative values should be indicated with a minus sign.) Show less Company Name Larson Benson Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net Income Percentage change Complete this question by entering your answers in the tabs below. Required A Required B Required 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 Variable cost per unit Sales revenue Variable cost Contribution margin Fixed cost Net Income Percentage change

Answer & Explanation Solved by verified expert

See Answer