Ch $13$: Assignment $-$ Capital Structure and Leverage

Consider the case of Blue Mouse Manufacturers:

Blue Mouse Manufacturers is considering a project that will have fixed costs of $$15,000,000.$ The product will be sold for $$41\mathrm{.}50$ per

unit, and will incur a variable cost of $$11\mathrm{.}25$ per unit.

Given Blue Mouse's cost structure, it will have to sell

units to break even on this project $(Q_{BE}).$

Blue Mouse's marketing and sales director doesn't think that the firm's market is big enough for the firm to break even. In fact, she believes that the

firm will be able to sell only about $200,000$ units. However, she also thinks that the demand for Blue Mouse's product is relatively inelastic $($so the firm

can increase the sales price without significantly decreasing the volume of product sold$).$ Assuming that the firm can sell $200,000$ units, what price

must it set to break even?

$$86\mathrm{.}25$ per unit

$$81\mathrm{.}94$ per unit

$$103\mathrm{.}50$ per unit

$$94\mathrm{.}88$ per unit

What affects the firm's operating break$-$even point?

Several factors affect a firm's operating break$-$even point. Based on the scenarios described in the following table, indicate whether these factors

would increase, decrease, or leave unchanged a firm's break$-$even quantity$-$assuming that only the listed factor changes and all other relevant factors

remain constant.