Google Answers Logo
View Question
 
Q: Finance Questions ( Answered 5 out of 5 stars,   1 Comment )
Question  
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?
Answer  
Subject: Re: Finance Questions
Answered By: wonko-ga on 05 Apr 2005 10:38 PDT
Rated:5 out of 5 stars
 
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

Request for Answer Clarification by zimmy-ga on 05 Apr 2005 13:21 PDT
Wondered if you might be able to answer my other question in Business
and Money/Accounting?

THANKS!

Clarification of Answer by wonko-ga on 05 Apr 2005 17:12 PDT
I will take a look at it if it is still available.

Thank you for the generous tip and five-star rating.

Sincerely,

Wonko
zimmy-ga rated this answer:5 out of 5 stars and gave an additional tip of: $5.00
Thank you so much!  I TRULY appreciate this!

Comments  
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.

Important Disclaimer: Answers and comments provided on Google Answers are general information, and are not intended to substitute for informed professional medical, psychiatric, psychological, tax, legal, investment, accounting, or other professional advice. Google does not endorse, and expressly disclaims liability for any product, manufacturer, distributor, service or service provider mentioned or any opinion expressed in answers or comments. Please read carefully the Google Answers Terms of Service.

If you feel that you have found inappropriate content, please let us know by emailing us at answers-support@google.com with the question ID listed above. Thank you.
Search Google Answers for
Google Answers  


Google Home - Answers FAQ - Terms of Service - Privacy Policy