Jonathan Values Word at $100 and Excel at $90, and Ashley

question 244

Multiple Choice

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. If the programs are sold as a bundle, what is the profit-maximizing price?

• A) $90
• B) $110
• C) $140
• D) $190

---

Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, highlighting the fixed vs. variable cost structure of a company.

EBIT

Earnings Before Interest and Taxes refers to the profits of a company that are calculated by excluding interest and income tax expenses from its total expenses.

MM Model

This refers to the Modigliani-Miller theorem, a foundational element of corporate finance theory that proposes, under certain conditions, the value of a firm is unaffected by how it is financed.

Corporate Taxes

Taxes imposed on the income or profit of corporations by the government, affecting the company's net income and cash flow.