Lease space in existing plaza for its tax services

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Reference no: EM132183822

C&A has to decide whether to build a new facility or lease space in an existing plaza for its tax services. If the facility is built, C&A will incur fixed costs of $80,000 and variable costs of $100 per client. If the facility is leased, its fixed costs will go down to $50,000 but its variable costs will become $300 per client. C&A charges $800 per client. The level of demand for C&A s tax services fluctuates depending on the following state of the economy: State of the economy Demand level Likelihood Best 1000 0.3 Worst 100 0.7 If C&A decides to lease and the economy turns out to be in its best state, C&A can further decide whether or not to lease more space for an additional costs of $20,000 to have enough capacity to serve 100 more clients. Which of the following statements about the decision to lease space in an existing plaza is true? C&A will break even if the economy is at its best. C&A will have a profit of $179,000 if the economy is at its best. C&A will have a loss of $5,000 if the economy is at its worst. C&A will have a profit of $5,000 if the economy is at its best. C&A will break even if the economy is at its worst.

Reference no: EM132183822

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