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Subject:
Finance Questions
Category: Business and Money > Finance Asked by: zimmy-ga List Price: $35.00 |
Posted:
04 Apr 2005 13:09 PDT
Expires: 04 May 2005 13:09 PDT Question ID: 504831 |
I need these by 4/5/2005 (tomorrow)! Please show all work. Thanks. 1) If I own a T-shirt business, and the sales price per T-shirt is $16, the variable operating cost per T-shirt is $6 and the fixed operating cost is $40,000?What is the breakeven point in units? What is the sales dollar break-even level. 2) If I own a cosmetic company that produces skin care products, and I sell 400,000 bottles a year. If my income statement for 2004 reads: Sales Revenues (400,000 bottles @ $1 each) -- $400,000 Less: Variable costs (400,000 bottles @ $0.84) -- $336,000 Less: Fixed Costs -- $28,000 Earnings Before Interest and Taxes -- $36,000 Interest Expense -- $6,000 Earnings Before Taxes - 30,000 Income tax expense (40%) -- $12,000 Earnings After Taxes -- $18,000 What is the degree of operating leverage? What is the degree of financial leverage? What is the degree of combined leverage? 3) How much can be accumulated for retirement if $2,000 is deposited annually, beginning one year from today and the account earns 9% interest compounded annually for 40 years? 4) How much should you pay for a $1,000 bond with 10% coupon, annual payments and five years to maturity if the interest rate is 12%? 5) 123 Industries is in the process of choosing the better of two equal risk, mutually exclusive, capital expenditure projects-Project X and Project Y. The relevant cash flows for each product are shown in the following table. The firm's cost of capital is 10%. Project X Project Y Initial Investment $28,500 $27,000 Cash Inflows Year 1 10,000 8,000 Year 2 10,000 8,000 Year 3 10,000 8,000 Year 4 10,000 8,000 a) Calculate each project's payback period. b) Calculate the net present value for each project. c) Based on the above information, which project would you recommend and why? 6) I placed $25,000 in a savings account paying annual compound interest of 8% for three years and then I moved it to a savings account that pays 10% interest compounded annually. How much will my money have grown at the end of six years? 7) What are the advantages and disadvantages (if any) of utilizing payback period, net present value and internal rate of return to analyze a capital expenditure? |
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Subject:
Re: Finance Questions
Answered By: wonko-ga on 05 Apr 2005 10:38 PDT Rated: |
1) Break even is the point at which a sufficient number of units have been sold to cover the fixed costs. The selling price of $16 and variable cost of six dollars leaves $10 per unit sold to cover fixed costs. $40,000 in fixed costs/$10 per unit = 4000 units. At $16 per unit, this amounts to $64,000 in sales. 2) Degree of Operating Leverage = (Sales - variable costs)/earnings before interest and taxes = ($400,000 - $336,000)/$36,000 = 1.78 Degree of Financial Leverage = earnings before interest and taxes/earnings before taxes = $36,000/$30,000 = 1.2 Degree of Combined Leverage = Degree of Operating Leverage*Degree of Financial Leverage = 1.78*1.2 = 2.14 Source: "Break-even & Leverage Analysis" by Timothy R. Mayes http://clem.mscd.edu/~mayest/FIN3300/Files/ch12.ppt 3) the future value of an annuity is F = A[(1+i)^n- 1/i] = $2000 [(1+ 0.09)^ 40-1/0.09] = $675,764.89 4) the present value of an annuity is P =A [(1+i)^n- 1/i (1+i)^n] = $100 [(1+ 0.12)^ 5-1/0.12 (1+ 0.12)^ 5] = $360.48 5) Project X Payback = $30,000/$28,500*3 years = 2.85 years Project Y Payback = $32,000/$27,000*4 years = 3.375 years Project X NPV = $10,000 [(1 +0.10) ^ 4-1/0.10 (1+ 0.10) ^ 4] - $28,500 = $3198.65 Project Y NPV = $8,000 [(1 +0.10) ^ 4-1/0.10 (1+ 0.10) ^ 4] - $27,000 = -$1641.08 Because Project X has the largest positive NPV, it should be selected. 6) the future value of a present value invested for three years at one interest-rate and then for three years at a different interest-rate is F= [P (1+i1) ^n1] (1+i2) ^n2 = [$25,000 (1 +0.08) ^ 3] (1+ 0.10) ^ 3 = $41,916.92 7) Payback is never an appropriate way to compare a group of proposed investments because it fails to give weight to the difference and consequences of different investment proposals after the date of the payout. Both internal rate of return and net present value are superior because they include the time value of money and the presence or absence of additional returns beyond the initial payback. "However a major disadvantage of using the Internal Rate of Return instead of Net Present Value is that if managers focus on maximizing IRR and not NPV, there is a significant risk in companies where the return on investment is greater than the Weighted Average Cost of Capital (WACC) that managers will not invest in projects expected to earn greater than the WACC, but less than the return on existing assets. IRR is a true indication of a project's annual return of investment only when the project generates no interim cash flows - or when those interim investments can be invested at the actual IRR." "Internal Rate of Return-IRR" Value Based Management.net (March 31, 2005) http://www.valuebasedmanagement.net/methods_irr.html Source for all formulas for questions 3-6 and the non-quoted material used in question 7 is "Principles of Engineering Economy" eighth edition by Grant, Ireson, and Leavenworth, John Wiley and Sons, Inc. (1990) Your tips are appreciated. Sincerely, Wonko | |
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zimmy-ga
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Thank you so much! I TRULY appreciate this! |
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Subject:
Re: Finance Questions
From: daniel2d-ga on 05 Apr 2005 22:19 PDT |
Maybe there should be a rule against doing someone's school work. The requestor is most likely violating their student's code of conduct. |
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