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)	$	19.00			$	9.50
Sales revenue (9,000 units $31.00)	$	279,000			$	279,000
Variable cost (9,000 units a)		(171,000	)			(85,500	)
Contribution margin	$	108,000			$	193,500
Fixed cost		(25,000	)			(110,500	)
Net income	$	83,000			$	83,000

Required

Use the contribution margin approach to compute the operating leverage for each firm.

If the economy expands in coming years, Larson and Benson will both enjoy a 11 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.)

If the economy contracts in coming years, Larson and Benson will both suffer a 11 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.)

If the economy expands in coming years, Larson and Benson will both enjoy a 11 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.) (Round "Percentage" answer to 2 decimal place (i.e., .2345 should be entered as 23.45). Round final answers to nearest whole dollar.)

If the economy contracts in coming years, Larson and Benson will both suffer a 11 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.) (Round "Percentage" answer to 2 decimal place (i.e., .2345 should be entered as 23.45). Round final answers to nearest whole dollar.)

\begin{tabular}{|l|l|l|l|l|} \hline & \multicolumn{4}{|c|}{ Company Name } \\ \hline \multicolumn{2}{|c|}{ Larson } & \multicolumn{2}{|c|}{ Benson } \\ \hline Variable cost per unit & $ & 19.00 & $ & 9.50 \\ \hline Sales revenue & & & & \\ \hline Variable cost & & & & \\ \hline Contribution margin & & & & \\ \hline Fixed cost & & & & \\ \hline Net income & & % & % \\ \hline Percentage change & & & & \\ \hline \end{tabular}