You work for the strategy group of Adapt Inc., a firm that designs and manufactures memory cards for digital cameras. Your task is to gather intelligence about Adapt’s key competitor, DigiMem, a privately held company. Your boss has asked you to estimate DigiMem’s fixed costs. Industry sources, such as trade associations, provide the following information on DigiMem:
| Last Fiscal | |
| DigiMem | Year |
| Revenues (millions) | $6.200 |
| Net income after taxes (millions) | $1.700 |
| Income tax rate | 40% |
| Operating margin* | 70% |
Required:
a. Using the preceding data, estimate DigiMem’s annual fixed costs.
b. Why might your boss be interested in knowing DigiMem’s fixed costs?
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