An 8 Year Project Is Estimated to Produce a Product

question 14

Multiple Choice

An 8 year project is estimated to produce a product with the following information: selling price = $80 per unit; variable costs are $65 per unit; fixed costs are $20,000; required return is 10%; initial investment = $200,000.Calculate the Degree of operating leverage.

• A)0.83
• B)0.73
• C)0.63
• D)0.53

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Definitions:

Sharing Contracts

A type of franchising agreement under which the franchisee pays the franchisor a percentage of revenue rather than a fixed fee.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Franchising

A business model wherein a business owner licenses their business logo, name, and operating model to an external party or franchisee.

Franchising Relationship

A business model that involves a contractual partnership between a franchisor and franchisee to use the franchisor's brand and operating methods.