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In solving the exercises below, round all the dollar figures to TWO DECIMAL POINTS.

12-2

The Lenovo Company has recently started producing and selling the HDMI to VGA adaptors, as these days most laptops do not have a VGA port.

The companys management has estimated that this year, in 2018, the company will be able to sell 100,000 of such adaptors at a price of $38 per piece.

The variable cost per unit incurred by Lenovo is $22 per adaptor.

The companys fixed costs amount to $70,000 per year.

The annual interest expense incurred by Lenovo for the debt borrowed is $20,000.

The applicable corporate tax rate for the firm is 40%.

Lenovos dollar sales have been forecasted to boom next year, in 2019, thus reaching a 20% increase.

In answering the questions that follow, show all workings, formulas used and calculations.

a. Compute the minimum price that Lenovo should charge for each adaptor in order to break-even, given the level of unit sales in Year 2018.

b. Determine the minimum number of adaptors that Lenovo should sell in Year 2018 in order to break-even.

c. Calculate the minimum level of dollar sales that Lenovo should reach in Year 2018 in order to break-even.

d. Determine Lenovos level of operating leverage.

e. Determine Lenovos level of financial leverage.

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