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A Firm Is Considering Adding a Second Secretary to Answer

question 19

Essay

A firm is considering adding a second secretary to answer phone calls and make appointments. The cost of the secretary will be $10/hour and she will work 200 hours each month. If each new client adds $400 of profit to the firm, how many clients must the secretary arrange for the firm to break even?
Suppose that the secretary has an equal chance of providing either 0, 2, or 6 new clients each month. Should the firm hire the secretary?


Definitions:

Dividend Payout Ratio

The fraction of net income a firm pays to its shareholders in dividends, typically expressed as a percentage.

Dividend Payout Ratio

A metric that shows what portion of a company's earnings are distributed to shareholders in the form of dividends, typically expressed as a percentage.

External Financing Needed

The amount of funding a company must seek from outside sources to finance its business operations and growth ambitions beyond what it can generate internally.

Internal Rate of Growth

The maximum rate of growth a firm can achieve without resorting to external financing, relying solely on its own resources.

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