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Faber Corporation, a basketball hoop manufacturing firm in Hickory, Indiana, plans to branch out and begin producing basketballs in addition to basketball hoops. It has a choice of two different production methods for the basketballs. Method 1 will have variable costs of $6 per ball and fixed costs of $700,000 for the high-tech machinery, which requires little human supervision. Method 2 employs many people to hand-sew the basketballs. It has variable costs of $16.50 per ball, but fixed costs are estimated to be only $100,000. Regardless of which method CEO Norman Dale chooses, the basketballs will sell for $30 each. Marketing research indicates sales in the first year will be 50,000 balls. Sales volume is expected to increase to 60,000 in year 2. d. Calculate the percentage change in EBIT for each method. e. Calculate the year 1 degree of operating leverage for each method, using your answers from parts b and d . f. Calculate the degree of operating leverage again. This time use only revenue, fixed costs and variable costs from year 1 (your base year) for each production method. g. Under which production method would EBIT be more adversely affected if the sales volume did not reach the expected levels? h. What would drive this adverse effect on EBIT? i. Recalculate the year 1 base year EBIT and the degree of operating leverage for both production methods if year 2 sales are expected to be only 53,000 units.
Find the price bounds for the five-month forward price when: (1) the stock price is $50 today; (2) A trader can borrow money at 5 percent and lend money at 4 percent, where the interest rates are annual simple interest rates; (3) a brokerage commissi..
LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 12%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 30%, what is LL's after-tax cost of debt?..
Find the future value of a ordinary annuity, $3,000 a year for five years at 8%. I need to see what the N is, the I/Y is, the PV is, the PMT is, and the FV is. Also can you please show me your work so I understand where the numbers come from?
Sea Side, Inc., just paid a dividend of $1.76 per share on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 20 percent on the stock for the first three years, then a 1..
What do you suggest as an optimal dividend policy for both Phoenix and Denver that might lead to increases in both of their share prices? What are the limitations of your suggestions?
Iowa Automotive is considering adding a new auto manufacturer to their inventory of cars that they offer at the dealership. In addition to sales, the new cars will increase cash flows from repairs/service for the dealership by $4,500 per month. Which..
Is there credit risk in an interest rate swap with an intermediary bank serving as the swap dealer? Describe when default losses might arise and which party is at risk. Explain how credit risk can be reduced.
Federated Holdings recently issued $90 par-value preferred stock that pays a 7% dividend rate per year.- What is the intrinsic value of this preferred stock?
If the constant growth ("Gordon" or "Constant Growth Dividend Discount") model is to give a reasonablea valuation of a stock, which of the following is not a valid assumption for the model?
assignment most people become aware of the importance of derivatives only by reading headline reports of major
You bought one of Great White Shark Repellant Co.’s 8 percent coupon bonds one year ago for $1,044. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6..
You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 9 percent, -12 percent, 21 percent, 31 percent, and 18 percent. Suppose the average inflation rate over this period was 3.4 percent and the average T-bil..
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