Orange Corporation has gathered the following data on a proposed investment project: Investment in depreciable equipment $ 520,0
1 answer:
You might be interested in
Answer:
1) Margin of safety = $1,000,000 so that is c)
2) Margin of safety (%) = 20%, that is a)
Explanation:
Hi, first, we need to introduce the formulas to use.
Margin of safety (Dollars)
Margin of safety (%)
Where
BEP = Break even point in dollars
This means that we need to find the break even point first, the formula to use is:
From there, we need the break even point in dollars, so:
Everything should look like this
And the BEP in dollars is:
Now, we know that our actual level of sales is 25,000*$200=$5,000,000, therefore Ralph Corporation margin of safety is:
So, the answer is c. Ralph Corporation’s margin of safety in dollars is $1 million.
Now for the next part, everything should look like this.
Then, the answer is a. Ralph Corporation’s margin of safety in percentage is 20%
Best of luck.