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1. A company is currently selling 500 units of a product per day at $10 per unit. You can assume that the product’s variable costs are constant; they are now at 40 percent of the product’s current price. If the company's sales increase above 600 units per day, an incremental fixed cost of $240 will be incurred.
(a) What is the breakeven sales level for a 12 percent price increase? (b) What is the breakeven sales level for a 12 percent price decrease?
2. The manager of a small business is considering lowering the price on his main product for the coming year. If there is any increase in the company’s current sales, the manager would have to acquire another delivery truck. He can obtain a used truck for $10,000. The market value of this truck would be expected to decline by $2,000 per year. Assume that the manager would earn 6 percent annual interest on the $10,000 if he did not buy the truck. What is the cost associated with this truck that is relevant to this pricing decision?
Describe how the concept of beta impacts financial decision-making.
Herbert Engineering is issuing new 15-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry a 9% annual interest rate. However, with the warrants attached the bonds will pay a 6% annual coupon. There are 30 w..
Green Manufacturing, Inc., plans to announce that it will issue $2.01 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. Green is currently an all-equity firm worth $..
Momsen Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year during the next three years, 18 percent over the following year, and then 5 percent per year indefinitely. The required return on this stock is 11 percen..
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of 3.7 percent per year, compounded monthly for the first six months, increasing thereafter to 18.6 percent compounded monthly. Required: Assuming y..
A furniture manufacturer is planning on buying a new industrial sander costing $118,000. The sander has projected maintenance costs of $16,000 annually over the three-year life of the sander. At the end of the three years, the sander will be worthles..
1) Calculate the value of your portfolio. 2) Calculate the D, G, W and k of your portfolio. 3) If the price goes up by $2 suddenly, what is the value of your portfolio after that change?
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of treasury bills that pay 4% and a risky portfolio, P, constructed with 2 risky securities X and Y. The optimal weights of X and Y in P are 40% and 60% ..
A recent graduate was hired to lead a small public company. In an effort to increase the stock price of the company he proposed increasing the dividends of the company. He explained “since the stock price is basically based off of present value of al..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next seven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $15.50 per share 8 years..
A property is sold for $5,100,000 with selling costs of 3% of the sales price. The mortgage balance at the time of sale is $3,600,000. The property was purchased 5 years ago for $4,820,000. Annual depreciation allowances of $153,016 have been taken. ..
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be w..
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