BA 101 1st Edition Lecture 15 Outline of Last Lecture 1 Break Even analysis 2 Net Present Value 3 Marketing strategy Outline of Current Lecture I Break Even and Net Present Value Review II Business Law Current Lecture I Break Even and Net Present Value Review Break Even Analysis Definition the break even is the point at which the sales and costs are equal Profit is zero at this point The business has broken even Or the break even point answers the question how many units do you have to sell to cover all of your costs Break even units fixed costs over price variable costs per unit or contribution margin over units Advantages of Break Even Analysis Quick assessment of potential for a business or a new product It identifies a finite target Disadvantages Assumes that all products are sold at the same price Doesn t specify a time frame Does not consider the net present value of money Net Present Value NPV this concept answers the question is it better to have one million dollars today or 100 000 every year for the next ten years The answer is in the difference between the present value of cash inflows and the perceived value of cash outflows It would be better to have one million dollars today because you could invest or otherwise use it to make more money while the 100 000 dollars would be worth less down the line because of inflation These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute NPV is used to analyze the current value of an investment or project It compares the value of a dollar today to the value of the same dollar in the future taking into account inflation and dollar returns Inflation and dollar returns are opposing forces If a project s NPV is positive it should generally be accepted if it s negative it should be rejected II Business Law The legal and regulatory environment that businesses operate in Contracts Legally enforceable agreements between two or more parties Contracts consist of an offer acceptance and consideration They don t have to be written to be enforceable Contractual Capacity To be a legal contract the parties must have a legal ability to enter into the contract They have to be of age mentally sound and not coerced Private Enterprise The market turns self interest into social good and to work the system needs private property the right to keep profit fair competition and freedom of choice The Role of Government To ensure fair competition private property freedom of choice and right to keep profit To promote economic health and social responsibility To correct market failures and ethical lapses How does the government intervene Through legal channels Problems with Businesses The power of business vs consumers The actions of businesses vs consumers Public reaction businesses have a lot of social power The reaction of the government businesses have a lot of political power Tort a civil wrong inflicted on other people or their property Form of negligence Torts include all wrongs that are not a breach of contract Includes assault fraud slander Fraud form of tort where someone hurts another through deception or manipulation Alternative dispute resolution Arbitration binding and non binding and mediation always nonbinding Types of Property Real real estate and everything permanently attached to it Personal every other material item Intellectual property generated by a person s creative activities 3 Types of Intellectual Property Patent inventors get exclusive rights to inventions Copyright Authors have exclusive rights to documents Trademark symbols used by firms to identify products Bankruptcy The primary purposes of the law of bankruptcy are to give an honest debtor a fresh start in life by relieving the debtor of most debts and to repay creditors in an orderly manner to the extent that the debtor has property available for payment Legal nonpayment of financial obligation Liquidation and erasure of debt Restructure and repayment plans for individuals