1. You own a plant that produces 10,000 copiers per year. Your fixed costs are $50,000 per year. The marginal cost per copier is a constant $5. What is your break-even price? What would be your break-even price if you were to sell 70% more copiers?
2. Suppose you make an initial investment of $70,000 that will return $20,000/year for four years (assume the $20,000 is received each year at the end of the year). Is this a profitable investment if the discount rate is 15%?
3. A US company has revenue of $5.5 million and total costs of $7.5 million, which are or can be broken down into total fixed cost of $3 million and total variable cost of $4.5 million. The net loss on the firms income statement is reported as $2,000,000 (ignoring tax implications). In prior periods, the firm had reported profits on its operations.
- What decision should the firm make regarding operations over the short term?
- What decision should the firm make regarding operations over the long term?
- Assume the same business scenario except that revenue is now $5.0 million, and total costs of $7.5 million, which are or can be broken down into total fixed cost of $3 million and total variable cost of $4.5 million, which creates a net loss of $2.5 million. What decision should the firm make regarding operations in this case?
