Sprint Nextel is one of the largest digital wireless service providers in the United States. In a recent year, it had 39.7 million direct subscribers (accounts) that generated revenue of $14,647 million. Costs and expenses for the year were as follows (in millions):
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,091
Selling, general, and administrative expenses . . . . . . . . . . 4,411
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,557
Assume that 70% of the cost of revenue and 40% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).
a. What is Sprint Nextel’s break even number of accounts, using the data and assumptions above? Round units to the nearest million.
b. How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant?
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