Number of New Clients per Day Probability 20 0.10 30 0.30 55 0.40 85 0.20
Don Masters and two of his colleagues are considering opening a law office in a large
metropolitan area that would make inexpensive legal services available to those who
could not otherwise afford these services. The intent is to provide easy access for their
clients by having the office open 360 days per year, 16 hours each day from 7:00 a.m. to
11:00 p.m. The office would be staffed by a lawyer, paralegal, legal secretary, and
clerk-receptionist for each of the two 8-hour shifts.
In order to determine the feasibility of the project, Don hired a marketing consultant
to assist with market projections. The results of this study show that if the firm spends
$500,000 on advertising the first year, the number of new clients expected each day
would have the following probability distribution:
Don and his associates believe these numbers are reasonable and are prepared to
spend the $500,000 on advertising. Other pertinent information about the operation of
the office is as follows.
The only charge to each new client would be $30 for the initial consultation. All cases
that warranted further legal work would be accepted on a contingency basis with the
firm earning 30 percent of any favorable settlements or judgments. Don estimates that
20 percent of new client consultations will result in favorable settlements or
judgments averaging $2,000 each. Repeat clients are not expected during the first year
of operations.
The hourly wages of the staff are projected to be $25 for the lawyer, $20 for the
paralegal, $15 for the legal secretary, and $10 for the clerk-receptionist.
expenses will be 40 percent of the wages paid. A total of 400 hours of overtime is
expected for the year; this will be divided equally between the legal secretary and the
clerk-receptionist positions. Overtime will be paid at one and one-half times the
regular wage, and the fringe benefit expense will apply to the full wages.
Don has located 6,000 square feet of suitable office space, which rents for $28 per
square foot annually. Associated expenses will be $22,000 for property insurance and
$32,000 for utilities.
It will be necessary for the group to purchase malpractice insurance, which is
expected to cost $180,000 annually. The initial investment in office equipment will be
$60,000; this equipment has an estimated useful life of four years. The cost of office
supplies has been estimated to be $4 per expected new client consultation.
Required:
1. Determine how many new clients must visit the law office being considered by
Don Masters and his colleagues in order for the venture to break even during its
first year of operations.
2. Using the information provided by the marketing consultant, determine if it is
feasible for the law office to achieve break-even operations. (CMA adapted
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