Reference no: EM132666181
ABC Electronics - Case Study
10-year marketing campaign whereby the credit terms to customers will be relaxed together with other marketing strategies. This campaign would result in a (forecasted) increase in sales of 3,000 units per year and a cash expense of $50,000 per year.
The new warehouse facility would cost $600,000. It will have ten-year usable life and would be depreciated over its life using the straight-line depreciation method (assume no salvage value).
Total variable costs are estimated at $200 per unit, which includes material and labour costs. The unit selling price of the product is $260.
As per the above forecasts and assume they remain the same every year, the 10-year marketing campaign and cost-saving due to the acquisition of the new facility would generate free cash flows of $109,000 per year.
HCL has a 30% tax rate and the company's liabilities amount to 60% of the total asset.
(i) Treasury bonds with $1,000 face value, 10 years to maturity, annual coupons of $50, and yield to maturity of 3% per year, which currently trading at the price of $1100 per unit, and (ii) Ordinary shares of company XYZ, which just paid a dividend of $0.50 per share, with dividend growth prospects of 4% per year and required rate of return of 8%. The share is currently trading at a price of $14.
Wanting to know from the case study above:
1) What is the Fixed Cost (F)
2) What is the Variable Cost (V)
3) Selling Price (P)
4) Accounting break-even point
5) Cash break even point
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Abc electronics-case study
: 10-year marketing campaign whereby the credit terms to customers will be relaxed together with other marketing strategies. This campaign would result
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