Question: Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however,
Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million 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 years operations of the two firms he is considering and give him some business advice.
| Company Name | ||||||||||||||||
| Larson | Benson | |||||||||||||||
| Variable cost per unit (a) | $ | 20.00 | $ | 10.00 | ||||||||||||
| Sales revenue (8,300 units $30.00) | $ | 249,000 | $ | 249,000 | ||||||||||||
| Variable cost (8,300 units a) | (166,000 | ) | (83,000 | ) | ||||||||||||
| Contribution margin | $ | 83,000 | $ | 166,000 | ||||||||||||
| Fixed cost | (24,000 | ) | (107,000 | ) | ||||||||||||
| Net income | $ | 59,000 | $ | 59,000 | ||||||||||||
| Use the contribution margin approach to compute the operating leverage for each firm.(FILL IN WHERE X IS)
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