Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year's operations of the two firms he is considering and give him some business advice.
Company Name
Larson Benson
Variable cost per unit (a) $19.00 $9.50
Sales revenue (8,900 units * $30.00) $267,000 $267,000
Variable cost (8,900 units * a) (169,100) (84,550)
Contribution margin $97,900 $182,450
Fixed cost (24,100) (108,650)
Net income $73,800 $73,800
If the economy expands in the coming years, Larson and Benson will both enjoy an 11 percent per year increase in sales, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage.
