euenues. Average unit price is $10) First year estimated sales quantity of new roduct is 2,000 units. New sales quantity is expected to increase 5% the second ear. New products cannibalize $3,000 in sales of existing product each year. osts. Gross profit margin is 40% for new product and 30% for existing product. Forporate tax rate Tc = 40%. et Working Capital Requirements. Receivables average 12% of revenue. All receiv- bles are eventually collected. Payables average 10% of Cost of Goods Sold. All ayables are eventually paid. Inventory costs average 8% of Cost of Goods Sold. yentory costs each year will be taken begin-of-year and all inventory will be used.

euenues. Average unit price is $10) First year estimated sales quantity of new roduct is 2,000 units. New sales quantity is expected to increase 5% the second ear. New products cannibalize $3,000 in sales of existing product each year. osts. Gross profit margin is 40% for new product and 30% for existing product. Forporate tax rate Tc = 40%. et Working Capital Requirements. Receivables average 12% of revenue. All receiv- bles are eventually collected. Payables average 10% of Cost of Goods Sold. All ayables are eventually paid. Inventory costs average 8% of Cost of Goods Sold. yentory costs each year will be taken begin-of-year and all inventory will be used.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 6P

See similar textbooks

Similar questions

SHOW COMPLETE SOLUTION Problem 3: ABC Corporation manufactures a certain product that sells for P5,000 each.The company’s maximum production capacity is 360 units per year. At present it is able toproduce and sell 280 units a year. The cost to manufacture each product is P2,400 and thefixed operating cost per year is P520,000. What is the break – even sales volume of the product per year? What is the profit per year based on the present production – sales status? What is the loss if only 150 units were produced and sold in a year?
Boss Enterprises currently sells its products for $30 per unit. Management is contemplating a 40% increase in the selling price for the next year. Variable costs are currently 40% of sales revenue and are not expected to change next year. Fixed expenses are $126,000 per year. What is the breakeven point in units at the current selling price? O A. 18 units ов. 10,500 units O C. 3,000 units O D. 7,000 units
Information: Revenues = Estimated at $1,000,000 for the upcoming year and anticipated to grow by 5% per year with different marketing tactics will employ. Expenses = $1,000,000 for the upcoming year and anticipated to decline to 95% of revenues each year thereafter as a result of the various cost efficiencies Struggle would put in place. Questions: XYZ is contemplating either the outright purchase today or a lease of a major piece of machinery and wants you to recommend which would be preferable – lease or buy. The following are the terms associated with each option: Purchase Price Option = $1,000,000 Incremental Borrowing Rate = 5% Estimated Life of Asset = 15 Years Lease Payments = $90,000/year for 15 Years with $1 Purchase Option at end of lease.
Assume a company is considering adding a new product. The expected cost and revenue data for this product are as follows: Annual sales 5,000 units Unit selling price $ 60 Unit variable costs: Production $ 33 Selling $ 6 Incremental fixed costs per year: Production $ 34,500 Selling $ 45,000 If the company adds the new product, it expects the contribution margin of other product lines to drop by $15,300 per year. What is the financial advantage (disadvantage) of adding the new product? Multiple Choice $40,800 $10,200 $89,700 $25,500
Last year Minden Company introduced a new product and sold 15,000 units at a price of $74 per unit. The product's variable expenses are S44 per unit and its fixed expenses are $521,400 per year. Required: What was this product's net operating income (loss) last year? What is the product's break-even point in unit sales and dollar sales? Assume the company conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., S72, S70, etc.), what is the maximum annual profit it can earn on this product? What sales volume and selling price per unit generate the maximum profit? What would be the break-even point in unit sales and dollar sales using the selling price you calculated in requirement 37
2. A new copier company plans to produce one model of copier. The copiers will sell for $820 each. The annual fixed costs of operation are $5,600,000 and the variable cost is $210 per unit. a. Assuming that they can sell everything they produce at this price, compute the breakeven quantity QBEP. b. If the company actually produces 11,000 copiers the first year, what will the profit/loss be? c. Include a fully-labeled breakeven chart illustrating the problem. 3. Fixed and variable cost for three potential facility locations are as shown below. Fixed cost Variable cost Location per year $240,000 $100,000 $150,000 per unit $15 $30 $20 a. Plot the total cost lines for these four locations on a single cost-volume graph. b. If expected output is to be 12,000 units per year, which location would provide the lowest cost? c. Identify the range of output over which each location alternative would be preferred (lowest cost). Compute the relevant crossover points, and clearly indicate your…
Break-Even Analysis; Pricing Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2 reduction in the selling price. The company’s present selling price is $70 per unit, and variable expenses are $40 per unit. Fixed expenses are $540,000 per year. The present annual sales volume (at the $70 selling price) is 15,000 units. Required: 1. What is the present yearly net operating income or loss? 2. What is the present break-even point in unit sales and in dollar sales? 3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (3) above (e.g., the selling price at the level of maximum profits)?…
2. Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1,200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: Currents Units sold 1,400 Sales price per unit $225 Variable cost per unit $145 Fixed costs $52,000 Break-even (in units) 650 Contribution margin ratio $0.36 break-even (in dollars) $146,250 Sales $315,000 Variable costs $203,000 Fixed costs $52,000 Net income (loss) $60,000 The following names are to be considered when completing this problem: Operating…
Be sure your inputs are set to the following: Plant Cost $4,000,000 year 0 Sales (units) 80,000 year 1 Selling Price $25 each Sales Growth per year Variable Costs 40% of revenu SG&A 50% of revenue SG&A Declines 2% per year Depreciation 5 years, straight-line Tax Rate 35% What is the Sales Growth percentage that results in total net income closest to 0? Report your answer to the nearest 0.1% with no extra words or punctuation. Examples of Correct Answers: 22.3% 22.3 Answer: Change your inputs to the following: Plant Cost $3,000,000 year 0 Salor fumital
APQ Company currently sells a piece of equipment for $150 per unit. It plans on lowering the price of the unit to $119 per unit. The cost of goods for each unit is consistent each year, at $52 per unit. The company expects to sell 100,000 units in the current year. Suppose that if APQ drops the price on the equipment immediately, it can increase sales over the next year by 30% to 130,000 units. Will this price decrease have a positive or negative impact on the company's EBIT? What will be the dollar value of the incremental impact of this price drop on the firm's EBIT? Will this have a positive or negative impact on the EBIT for the company? What will the dollar value of the incremental impact of the price drop be for the company? (Enter a negative for a loss, positive for a gain; round your answer to the nearest whole dollar.)
Assume everything is given in n=0,. CONSTANT dollars unless otherwise stated: Hartsfield Company is considering purchasing a set of machine tools at a cost of $90,000. The purchase is expected to generate revenues of $40,000, increasing by 8% each year directly due to increasing sales volumes (reminder: all values are given as constant dollar values). The purchase of the tools will also lead to operating costs of $9,000 per year in each of the next three years. Additional profits will be taxed at a rate of 40%. The asset falls into CCA Class 45 (rate = 40%) for tax purposes and the 50% rule applies. The project has a three-year life. The constant-dollar market (re- sale) value of the machine tools is expected to be $18 ,000. The machine tools will be purchased 50% on debt (so 50% of the tools' cost will be borrowed). The debt will be paid off in equal annual payments over the life of the project. The interest rate on the debt was negotiated at 11% annually. The general inflation rate…
5) Istanbul Company manufactures product A and is thinking reducing the price by 50 TL per unit for the coming year. If the price is reduced, demand is expected to increase by 6,000 units. If the price is reduced, operating profit will: Demand Selling price Incremental cost per unit A) increase by 800,000 TL B) decrease by 800,000 TL C) increase by 1,200,000 TL D) decrease by 1,400,000 TL E) increase by 1,000,000 TL Currently 40,000 units 450 300 Projected 46,000 units 400 300