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Brad’s company, an eastern based firm, is going through tough times. Downsizing is the only way to keep the company from going bankrupt. Brad has been given the assignment to eliminate an unprofitable region. His analysis has shown that the southwest region has a positive contribution margin but a net loss due to fixed costs. The western region has a positive contribution margin and a net loss. The eastern region has a positive contribution margin and a net income. The northeastern region has a positive contribution margin but a net loss. Brad further discovers that the net losses of the western and southwestern regions are due to fixed costs. Further investigation finds that the fixed costs can be separated by region costs and corporate costs. In Brad’s investigation, the eastern region, though having all the costs of a corporate office, has lower fixed costs, making it a profitable region. Brad finds that Joe Black, the manager of the eastern region, has decided to allocate all the corporate office expenses to the other three divisions to make his region appear more profitable. More analysis indicates that if the corporate offices are allocated evenly to all four regions, the eastern region would have a net loss and the other regions would have a slight net income. What should Brad do? Should Joe have the ability to allocate costs to other regions?
ALCO members are considering the following EVE sensitivity estimates. The figures refer to the percentage change in economic value of equity compared with the base rate forecast scenario. What does the information say about the bank's overall interes..
q1amulroney did not use working capital cash flows in her original analysis. the analysis aboveincludes incremental
Tank Ltd is considering undertaking the purchase of a new piece of equipment that is expected to increase revenue by $12,000 each year for six years. The equipment will increase costs $4,000 each year for six years. what is the machine's net cash flo..
Lucy is contemplating opening her own custom saddle factory. She estimates that she can make 10 saddles per year and sell them for $15,000 each. The raw materials to make 10 saddles would cost $70,000. What is Lucy’s annual opportunity cost if she de..
Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial margin is 70%. The maintenance margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his account?
R.S. Green has 250,000 shares of common stock outstanding at a market price of $28 a share. Next year's annual dividend is expected to be $1.55 a share. The dividend growth rate is 2 percent. The firm also has 7,500 bonds outstanding with a face valu..
If the rate of return for preferred stock goes up, for example because the market has become more risky, the price of preferred stock goes down.
Consider an asset that costs $511,000 and is depreciated straight-line to zero over its seven-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $168,000. If the relevant tax rate is 34..
Maintaining a constant dividend payout ratio is a dividend policy avoided by most firms because:
At December 31, 2013 and 2012, G Co. had 66,000 shares of common stock and 6,500 shares of 8%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2013 or 2012. Net income for 2..
Central Food Brokers is considering issuing a 20-year convertible bond that will be priced at its par value of $1,000 per bond. The bonds have a 12 percent annual coupon interest rate, and each bond could be converted into 30 shares of common stock. ..
Suppose that the consensus forecast of security analysts of your favourite company is that earnings next year will be E1 = $5.00 per share. Suppose that the company tends to plow back 50% of its earnings and pay the rest as dividends.
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