Compute the proposed law firm’s safety margin.

Casey Jones and two colleagues are considering opening a lawoffice in a large metropolitan area that would make inexpensivelegal services available to those who could not otherwise affordservices. The intent is to provide easy access for clients byhaving the office open 360 days per year, 16 hours each day from7:00 a.m. to 11:00 p.m. The office would be staffed by a lawyer,paralegal, legal secretary, and clerk-receptionist for each of thetwo eight-hour shifts. In order to determine the feasibility of the project, Caseyhired a marketing consultant to assist with market projections. Theresults of this study show that if the firm spends $980,000 onadvertising the first year, the number of new clients expected eachday will be 50. Casey and associates believe this number isreasonable and are prepared to spend the $980,000 on advertising.Other pertinent information about the proposed operation of theoffice follows: The charge to each new client would be $60 for the initialconsultation. All cases that warrant further legal work will beaccepted on a contingency basis with the firm earning 30 percent ofany favorable settlements or judgments. Casey estimates that 20percent of new client consultations will result in favorablesettlements or judgments averaging $4,000 each. It is not expectedthat there will be repeat clients during the first year ofoperations. The hourly wages of the staff are projected to be $50 for thelawyer, $40 for the paralegal, $30 for the legal secretary, and $20for the clerk-receptionist. Fringe benefit expense will be 40percent of the wages paid. A total of 400 hours of overtime isexpected for the year; this will be divided equally between thelegal secretary and the clerk-receptionist positions. Overtime willbe paid at one and one-half times the regular wage, and the fringebenefit expense will apply to the full wage. Casey has located 6,000 square feet of suitable office spacewhich rents for $56 per square foot annually. Associated expenseswill be $54,000 for property insurance and $74,000 for utilities.It will be necessary to purchase malpractice insurance, which isexpected to cost $360,000 annually. The initial investment in the office equipment will be $120,000.This equipment has an estimated useful life of four years. The cost of office supplies has been estimated to be $8 perexpected new client consultation. 1. Determine how many new clients must visit the law officebeing considered by Casey and colleagues for the venture to breakeven during its first year of operations. 2. Compute the proposed law firm’s safety margin. . . .

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