Finance Hellp
Hob419
finance_assignment.rtf1. WalkAbout Kangaroo Shoe Stores forecasts that it will sell 7,191 pairs of shoes next year. The firm buys its shoes for $50 per pair from the wholesaler and sells them for $75 per pair. The firm will incur fixed costs plus depreciation and amortization of $100,000, then what is the percent increase in EBIT if the actual sales next year equal 9,191 pairs of shoes instead of 7,191? (Round answer to 2 decimal palces, e.g. 15.25%.)
EBIT will increase by _____%
2. The degree of pretax cash flow operating leverage at Rackit Corporation is 2.73 when it sells 115,400 units of its new tennis racket and its EBITDA is $93,600. Ignoring the effects of taxes, what are the fixed costs for Rackit Corporation?
The fixed costs for Rackit Corporation is $
3. Calculate the accounting operating profit break-even point and pretax operating cash flow break-even point for each of the three production choices outlined below. (Round answers to 0 decimal places, e.g. 125.)
Choice
Price
Unit VC
FC
D&A
A
$253
$145
$15,458
$2,745
B
$53
$8
$1,017
$186
C
$10
$1.25
$95
$108
Accounting operating profit break-even of A is _____, B is________ , C is _____
Pretax operating cash flow break-even point of A is ________, B is ______ , C is ______.
4. The pretax operating cash flow of Memphis Motors declined so much during the recession of 2008 and 2009 that the company almost defaulted on its debt. The owner of the company wants to change the cost structure of his business so that this does not happen again. He has been able to reduce fixed costs from $496,444 to $361,071 and, in doing so, reduce the Cash Flow DOL for Memphis Motors from 3.3 to 2.2 with sales of $1,015,014 and pretax operating cash flow of $203,090. If sales declined by 20 percent from this level, how much more pretax operating cash flow would Memphis Motors have with the new cost structure than under the old? (Round answer to nearest whole dollar, e.g. 5,275.)
Memphis Motors would have $______ more pretax operating cash flow with the new cost structure than under the old.
5. Dandle’s Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $2.31, while it will be $7.32 in the small factory. The large factory would have fixed cash costs of $2.4 million and a depreciation expense of $300,000 per year, while those expenses would be $480,000 and $100,000, respectively, in the small factory. Calculate the accounting operating profit breakeven point for both factory choices for Dandle’s Candles. (Round answer to nearest whole units, e.g. 152.)
The accounting break-even point for large factory is ______ units and for small factory is ________ units.
6. Dandle’s Candles will be producing a new line of dripless candles in the coming years and has the choice of producing the candles in a large factory with a small number of workers or a small factory with a large number of workers. Each candle will be sold for $10. If the large factory is chosen, the cost per unit to produce each candle will be $2.42, while it will be $7.85 in the small factory. The large factory would have fixed cash costs of $2.8 million and a depreciation expense of $300,000 per year, while those expenses would be $590,000 and $100,000, respectively, in the small factory. Calculate the number of candles for which the accounting operating profit at Dandle’s Candles is the same regardless of the factory choice. (Round answer to nearest whole units, e.g. 152.)
At ______ unit sales the two factories would yield the same accounting operating profit.
7. Suppose that you could invest in the following projects but have only $32,200 to invest. How would you make your decision and which projects would you invest in?
Project
Cost
NPV
A
$ 7,800
$ 3,744
B
11,200
7,392
C
9,100
5,096
D
7,500
4,350
You should invest in project(s) ______.
