You work for the strategy group of Adapt Inc., a firm that designs and manufactures memory cards for digital cameras. Your task is to gather intelligence about Adapt’s key competitor, DigiMem, a privately held company. Your boss has asked you to estimate DigiMem’s fixed costs. Industry sources, such as trade associations, provide the following information on DigiMem:

DigiMem                    Last Fiscal Year 

Revenues (millions) $ 6.200 Net income after taxes ( millions) $ 1.700 Income tax rate 40% Operating margin* 70%

Required:

a. Using the preceding data, estimate DigiMem’s annual fixed costs. 

b. Why might your boss be interested in knowing DigiMem’s fixed costs?