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Exercise 4: Breakeven Calculations IIAaronNathanandAlexisRobertsarethinkingaboutlaunchinganewe-commerce business.
Exercise 4: Breakeven Calculations IIAaronNathanandAlexisRobertsarethinkingaboutlaunchinganewe-commerce business.Theyfirmlybelievethat30%ofthepeoplewhotrytheirproductatthefullpricewill buytwoadditionalunitsattheirplanned25%discountforfollow-uppurchases.Itisunlikely anyonewillbuyoneadditionalunit(asthey'dhavetopayfullprice)orthreeadditionalunits(as most people need at most three totalunits).Supposetheirfixedcostsare$390,000,sellingpriceis$40perunit,andvariablecosts are $20 perunit.a.Howmanycustomersdotheyneedtobreakeven?b.Whatprofitdotheymakeif20,000peopletrytheirproduct?c.Howsensitiveisyourprofitprojectionin(b)totheassumptionthat30%willbuytwo additionalunits?d.Suppose a 50% discount for follow-on purchases causes a dramatic increase inthe percentageofpeoplewhobuytwoadditionalunits.Howdramaticwouldithavetobefor this to be a goodidea?
