1 Based on the projection, NewStar Corp expects to generate revenues of $500,000 per year, with fixed costs of $200,000 per year, and variable costs that equals to 30 of the revenue (12 marks a) What is expected profit per year based on these expectations for Startup Corp 2m b) What is the degree of operating leverage based on the estimate of fixed cost and expected profit 2m c) If sales are 20 below expectation, what will be the decrease in profits Show that the percentage decrease in profits equals DOL times the 20 drop in sales 2m d) Based on the DOL, what is the largest percentage shortfall in revenue relative to original expectations that the firm can sustain before profits turn negative What is break even revenue at this point 2m e) Confirm that your answer to (d) is correct by calculating profits at the break even level of sales 2m f) Suppose that there is a new technology available in the market which can reduce the variable cost if implemented with a one time cost After implementing the technology, NewStar can break even when sales declines by 50 What would be the new variable cost in terms of percentage of the revenue 2m 1 Based on the projection, NewStar Corp expects to generate revenues of $500,000 per year, with fixed costs of $200,000 per year, and variable costs that equals to 30 of the revenue (12 marks a) What is expected profit per year based on these expectations for Startup Corp 2m b) What is the degree of operating leverage based on the estimate of fixed cost and expected profit 2m c) If sales are 20 below expectation, what will be the decrease in profits Show that the percentage decrease in profits equals DOL times the 20 drop in sales 2m d) Based on the DOL, what is the largest percentage shortfall in revenue relative to original expectations that the firm can sustain before profits turn negative What is break even revenue at this point 2m e) Confirm that your answer to (d) is correct by calculating profits at the break even level of sales 2m f) Suppose that there is a new technology available in the market which can reduce the variable cost if implemented with a one time cost After implementing the technology, NewStar can break even when sales declines by 50 What would be the new variable cost in terms of percentage of the revenue 2m

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1  Based on the projection, NewStar Corp expects to generate revenues of $500,000 per year, with fixed costs of $200,000 per year, and variable costs that equals to 30  of the revenue  (12 marks  a) What is expected profit per year based on these expectations for Startup Corp    2m  b) What is the degree of operating leverage based on the estimate of fixed cost and expected profit   2m  c) If sales are 20  below expectation, what will be the decrease in profits  Show that the percentage decrease in profits equals DOL times the 20  drop in sales   2m  d) Based on the DOL, what is the largest percentage shortfall in revenue relative to original expectations that the firm can sustain before profits turn negative  What is break even revenue at this point   2m  e) Confirm that your answer to (d) is correct by calculating profits at the break even level of sales   2m  f) Suppose that there is a new technology available in the market which can reduce the variable cost if implemented with a one time cost  After implementing the technology, NewStar can break even when sales declines by 50   What would be the new variable cost in terms of percentage of the revenue   2m  1  Based on the projection, NewStar Corp expects to generate revenues of $500,000 per year, with fixed costs of $200,000 per year, and variable costs that equals to 30  of the revenue  (12 marks  a) What is expected profit per year based on these expectations for Startup Corp    2m  b) What is the degree of operating leverage based on the estimate of fixed cost and expected profit   2m  c) If sales are 20  below expectation, what will be the decrease in profits  Show that the percentage decrease in profits equals DOL times the 20  drop in sales   2m  d) Based on the DOL, what is the largest percentage shortfall in revenue relative to original expectations that the firm can sustain before profits turn negative  What is break even revenue at this point   2m  e) Confirm that your answer to (d) is correct by calculating profits at the break even level of sales   2m  f) Suppose that there is a new technology available in the market which can reduce the variable cost if implemented with a one time cost  After implementing the technology, NewStar can break even when sales declines by 50   What would be the new variable cost in terms of percentage of the revenue   2m

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Question: 1. Based on the projection, NewStar Corp expects to generate revenues of $500,000 per year, with fixed costs of $200,000 per year, and variable costs

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