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In solving the exercises below, round all the dollar figures to TWO DECIMAL POINTS.
12-2
The Lenovo Company has recently started producing and selling the HDMI to VGA adaptors, as these days most laptops do not have a VGA port.
The companys management has estimated that this year, in 2018, the company will be able to sell 100,000 of such adaptors at a price of $38 per piece.
The variable cost per unit incurred by Lenovo is $22 per adaptor.
The companys fixed costs amount to $70,000 per year.
The annual interest expense incurred by Lenovo for the debt borrowed is $20,000.
The applicable corporate tax rate for the firm is 40%.
Lenovos dollar sales have been forecasted to boom next year, in 2019, thus reaching a 20% increase.
In answering the questions that follow, show all workings, formulas used and calculations.
a. Compute the minimum price that Lenovo should charge for each adaptor in order to break-even, given the level of unit sales in Year 2018.
b. Determine the minimum number of adaptors that Lenovo should sell in Year 2018 in order to break-even.
c. Calculate the minimum level of dollar sales that Lenovo should reach in Year 2018 in order to break-even.
d. Determine Lenovos level of operating leverage.
e. Determine Lenovos level of financial leverage.
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