Jagger Enterprises is evaluating a new product whose sales price would be set at 2.7 times...
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Jagger Enterprises is evaluating a new product whose sales price would be set at 2.7 times the variable cost (VC) per unit; the VC/unit is estimated to be $2.50. The fixed cost of the project is $12,000. 1. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the business? 2. What will be the break-even sales volume if the fixed cost is $15,000? 3. What is operating leverage? What does the example above indicate about the operating leverage's impact on the business risk of a company? Jagger Enterprises is evaluating a new product whose sales price would be set at 2.7 times the variable cost (VC) per unit; the VC/unit is estimated to be $2.50. The fixed cost of the project is $12,000. 1. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the business? 2. What will be the break-even sales volume if the fixed cost is $15,000? 3. What is operating leverage? What does the example above indicate about the operating leverage's impact on the business risk of a company?
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1 To calculate the sales volume required to break even we need to consider the fixed cost and the co... View the full answer
Related Book For
Essentials of Managerial Finance
ISBN: 978-0324422702
14th edition
Authors: Scott Besley, Eugene F. Brigham
Posted Date:
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