Fundamentals of Finance_Sommers_Date_040510

Fundamentals of Finance_Sommers_Date_040510 - Operating and...

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Operating and Financial Leverage o Fixed Cost – cost you incur on a cycle -it occurs regardless of production or service (has nothing to do with this) o Variable Costs – costs you incur depending on the products you produce -have some control over it (ex: you can decide if you want to stay open all night and pay for everything that goes into keeping the business open through the night) o To find the breakeven point use the following equation: Qb = FC/ (P-VC) Qb = quantity (units) to break even FC = fixed cost, always the total not the per unit cost P = price, always a per unit number VC = variable cost per unit Price Elasticity of Demand o Elastic – when there could be a 50% increase on a price but the consumption only went down by 33% The price went up a lot but the consumption didn’t go down that much considering the large percentage increase There is a direct correlation between pricing of a product with a number of products consumed o Inelastic – when the gas price increases by 100% but consumption stays the same
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This note was uploaded on 08/29/2010 for the course FINC 200 taught by Professor Kwansa,f during the Spring '08 term at University of Delaware.

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Fundamentals of Finance_Sommers_Date_040510 - Operating and...

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