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The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of
Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will ap
The Chinese Checker Company had revenues of $360,000 when 60,000 units were sold. If fixed costs totaled $90,000 and variable costs totaled $210,000, what was the contribution margin per unit?
Assume that Tammy's Tamales has fixed costs of $128,325. Each unit generates variable costs of $0.42 and sells for $1.00. What is the break-even point?
Explain what is meant by business and financial risk. Suppose Firm A has greater business risk than Firm B. Is it true that Firm A also has a higher cost of equity capital? Explain
Benoit's Baguette's has total costs of $7,000 when 3,500 units are produced and $10,500 when 7,000 units are produced. What is the total fixed cost?
Fred's Friendly Frisbee Corporation has a variable cost per unit budgeted to be $6.00 and fixed cost per unit budgeted to be $3.00 in a period when 5,000 units are produced. If production is actuall
If labor is a variable cost, and if production is expected to drop to 45,000 units in the next period, what is the expected labor cost in the next period?
This new debt will be used to repurchase shares of the outstanding stock. The restructuring is expected to increase the earnings per share. What is the minimum level of earnings before interest and
This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $50,000 in additional fixed costs would be association with the order. What will be the impact on
Costly Coffee Company owns two stores in New York City, on the East Side and on the West Side. Management is considering eliminating the East Side store due to declining sales. Segmented contributio
Underneath sells in a mix of 2 units of A, 3 units of B and 5 units of C. What is the weighted average contribution margin per unit for Underneath?
The Aggie Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9% coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate.
Suppose there is a financial asset ABC, which is the underlying asset for a futures contract with settlement six months from now. You know the following about this financial asset and the futures co
David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calcu
Jefferson and sons is evaluating a project that will increase annual sales by $138,000 and annual costs by $94,000. The project will initially require $110,000 in fixed assets that will be depreciat
You want your portolio beta to be 0.95. Currently, your portfolio consists of $4000 invested in stock A with a beta of 1.47 and $3000 in stock B with a beta of 0.54. You have another $9000 to inves
Follies Bookstore, the only bookstore close to campus, had net income in 2005 of $90,000. Here are some of the financial ratios from the annual report.
An investor buys a U.S. Treasury bond whose current yield to maturity is 10 percent. The investor is subject to a 33 percent federal income tax rate on any new income received. His real after-tax re
Assume Harris, Inc. Has 10,000,000 common shares outstanding that have a par value of $2 per share. The stock is currently trading for $30 per share. The firm reported a net profit after-tax of $25,
The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profi
Kennedy Air Services is now in the final year of a project. The equipment originally cost $17 million, of which 79% is depreciated. Kennedy can sell the used equipment today for 3.4 million and tis
Timmons, Inc., has 10 percent coupon bonds on the market that have 12 years left to maturity. The bonds make annual payments and have a par value (maturity value) of $1000. If the yield to maturity