Operating leverage. cover rugs is holding a 2-week carpet sale at josh’s club, a local warehouse store. cover rugs plans to sell carpets for $950 each. the company will purchase the carpets from a local distributor for $760 each, with the privilege of returning any unsold units for a full refund. josh’s club has offered cover rugs two payment alternatives for the use of space. • option 1: a fixed payment of $7,410 for the sale period • option 2: 10% of total revenues earned during the sale period assume cover rugs will incur no other costs. required: 1. calculate the breakeven point in units for (a) option 1 and (b) option 2. 2. at what level of revenues will cover rugs earn the same operating income under either option? a. for what range of unit sales will cover rugs prefer option 1? b. for what range of unit sales will cover rugs prefer option 2? 3. calculate the degree of operating leverage at sales of 65 units for the two rental options. 4. briefly explain and interpret your answer to requirement 3.

When marietta chooses to only purchase a combination of goods that lie within her budget line, she: is decreasing utility. is maximizing utility. likely has negative savings. must reduce the quantity?

Shrieves casting company is considering adding a new line to its product mix, and the capital budgeting analysis is being conducted by sidney johnson, a recently graduated mba. the production line would be set up in unused space in the main plant. the machinery’s invoice price would be approximately $200,000, another $10,000 in shipping charges would be required, and it would cost an additional $30,000 to install the equipment. the machinery has an economic life of 4 years, and shrieves has obtained a special tax ruling that places the equipment in the macrs 3-year class. the machinery is expected to have a salvage value of $25,000 after 4 years of use. the new line would generate incremental sales of 1,250 units per year for 4 years at an incremental cost of $100 per unit in the first year, excluding depreciation. each unit can be sold for $200 in the first year. the sales price and cost are both expected to increase by 3% per year due to inflation. further, to handle the new line, the firm’s net working capital would have to increase by an amount equal to 12% of sales revenues. the firm’s tax rate is 40%, and its overall weighted average cost of capital, which is the risk-adjusted cost of capital for an average project (r), is 10%. define “incremental cash flow.” (1) should you subtract interest expense or dividends when calculating project cash flow?

Most angel investors expect a return on investment of question options: 20% to 25% over 5 years. 15% to 20% over 5 years. 75% over 10 years. 100% over 5 years.