Reference no: EM132469049

Hoot Washington is the newly elected leader of the Republican Party. Media Publishers is negotiating to publish Hoot's Manifesto, a new book that promises to be an instant best-seller. The fixed costs of producing and marketing the book will be $500,000. The variable costs of producing and marketing will be $4.00 per copy sold. These costs are before any payments to Hoot. Hoot negotiates an up-front payment of $3 million, plus a 15% royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of $30, minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.

Question A. Prepare PV graph for Media Publishers

Question B. How many copies must Media Publishers sell to (a) break even and (b) earn a target operating income of $2 million?

Question C. Examine the sensitivity of the breakeven point to the following changes:

Question D. Decreasing the normal bookstore margin to 20% of the listed bookstore price of $30

Question E. Increasing the listed bookstore price to $40 while keeping the bookstore margin at 30%