Breakeven analysis of a retail music store
- Breakeven analysis
- Discount loan
- The discounts
- Cash conversion cycle for this business
- Advantages and disadvantages of issuing bonds instead of shares
- The Capital asset pricing model
Old friends Jane and Elizabeth have decided to open up a retail music store. They will open up a store in a large shopping mall, purchase CDs from the large music distributors, and resell them to the public. Their first decision is to determine if they can profit from this venture, so they must perform a Breakeven Analysis. Their monthly rent and utilities are $5,000. They will hire one part-time employee who will earn $1,000 per month. They also will have a small advertising budget of $300 per month for a website, posters, and ads in music magazines. Other miscellaneous operating expenses will be $100 per month. In addition to their own contributions, they also took out a simple loan for $40,000 at a 12% annual interest rate (1% per month). The CDs cost them an average of $12 each and they will sell them for $20 each. Calculate how many CDs they will need to sell each month in order to breakeven (have a Net Income of zero).