Dennis Triumph is the newly elected and charismatic nominee for president of the Republican Party. He is the hero of the right-wing media. In the first nationally televised presidential debates, his "take no prisoners" attitude has left his opponents feeling run over by a Mack truck.
Right Publishers is negotiating to publish Triumph's Manifesto, a new book that Mr. Triumph has written that promises to be an instant success.
The costs of producing and marketing the book are as follows:
Fixed costs $500,000
Variable costs per copy sold $4.00
These costs are before any payments to Triumph. Triumph's agent is negotiating an up-front payment of $3 million plus a 15% royalty rate on the net sales price of each book. The net sales price is the listed bookstore price of $30 minus the margin paid to the bookstore to sell the book. The normal bookstore margin of 30% of the listed bookstore price is expected to apply.
4. Right Publishing is considering the following two contract options proposed by Mr. Triumph:
A reduction in the bookstore normal margin of 30% to 20% of the listed bookstore price of $30. Calculate the new breakeven point.
An increase in the bookstore price of $30 to $40 while keeping the bookstore margin at 30%. Calculate the new breakeven point.
Which option would you recommend that Right Publishers agree to? Why?