MPE Inc. will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are currently working to finetune the companys sole service, which hopefully will generate a percent firstyear return profit on the firms $ asset investment. Although the normal return in MPEs industry is percent, executives are willing to accept the lower figure because of various startup inefficiencies. The following information is available for firstyear operations:

Hours of service to be provided:

Anticipated variable cost per service hour: $

Anticipated fixed cost: $ per year

Assume that prior to the start of business in year management conducted a planning exercise to determine if MPE could attain a percent return in year If the competitive pressures dictate a maximum selling price of $ per hour and service hours and the variable cost per service hour are the same as the amounts anticipated in year calculate the following amounts to determine if this return can be achieved.

a How much profit must MPE generate in the second year to achieve a percent return?

b Calculate the revenue per hour that MPE must generate in the second year to achieve a percent return.

c Can the company achieve this return?

Answer rating: 100% (QA)

a Profit required for a 12 return in Year 2 Let P denote the required profit in Year 2 I the initial ... View the full answer