Risky Scaffolding provides services to building contractors. The firm’s contribution margin ratio is 0.25 and its annual fixed costs are $400 000. The firm’s income tax rate is 40 percent.
1. Calculate the firm’s break-even revenue.
2. How much before-tax profit must the firm earn to make an after-tax net profit of $260 000?
3. What level of revenue for scaffolding services must the firm generate to earn an after-tax net profit of $260 000?
4. Suppose the firm’s income tax rate falls to 35 percent. What will happen to the break-even level of revenue?