Elephant Books Sells Paperback Books for $7 Each

question 6

Multiple Choice

Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of 200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable cost per book will drop by $1. Assume authors' royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even?

• A) $600,000
• B) $466,667
• C) $333,333
• D) $200,000
• E) None of the above

---

Definitions:

Internal Rate

Often refers to the internal rate of return (IRR), which is a discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Return

The amount of profit or loss gained from an investment relative to its initial cost.

Project A

Not a definitive key term without additional context; it likely refers to a specific, named project within a given context. NO.

Net Present Value

The gap between how much cash comes in and goes out, measured in present value terms, during a certain period.