Break Even Analysis and Operating Leverage
News.com is a Web site that offers users access to current national and international news. Global link that will link New.com's computer system to the internet. These firms are practical in terms of access speeds and number of users able to connect to the site per minute and both are equally reliable. NetCom proposes to charge $3,000 per month plus $0.01 per hit to News.com. Global link will charge $2,000 per month plus $0.02 per hit Assume that the only costs that News.com incurs are the ISP's access fees.
a. Calculate the number of hits to its web site needed to break even if News.com uses NetCom.
b. Calculate the number of hits to its web site needed to break even if News.com uses Globallink.
c. Which ISP do you recommend News.com? Explain why.
Solution contains calculations of break even analysis and operating leverage.