Question

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MPE, Inc. will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are currently working to fine-tune the company’s sole service, which hopefully will generate a 12 percent first-year return (profit) on the firm’s $17,100,000 asset investment. Although the normal return in MPE’s industry is 14 percent, executives are willing to accept the lower figure because of various start-up inefficiencies. The following information is available for first-year operations:

Hours of service to be provided: 25,000

Anticipated variable cost per service hour: $21.40

Anticipated fixed cost: $1,840,000 per year

2. How much profit must MPE generate in the first year to achieve a(n) 12 percent return?

Target Profit

Answer 1

target profit:
Investment made			17100000
Multiply: Required rate of return			12%
Target profit			2052000
Answer is $ 2052,000