Harper and her band want to put on a concert They have looked at two venues, a small one and a large one, and have compiled me following information
What is the breakeven pant of the small venue?
In a breakeven analysis, set the operating income equal to 0 and equate it with revenues minus fixed costs minus variable costs. The breakeven point is therefore
Stewart Industries has been producing two bearings, components B12 and B18, for use in production.
Stewart's annual requirement for these components is 8,000 units of B12 and 11000 units of B18. Recently, Stewart's management decided to devote additional machine time to other product lines resulting in only 41,000 machine hours per year that can be dedicated to the production of the bearings. An outside company has offered to sell Stewart the annual supply of the bearings at prices of $11.25 for B12 and $13.50 for B18. Stewart wants to schedule the otherwise idle 411000 machine hours to produce bearings so that the company can minimize its costs (maximize its net benefits). Note 1: Variable manufacturing overhead is applied on the basis of direct labor hours. Note 2: Fixed manufacturing overhead is applied on the basis of machine hours. The net benefit (loss) per machine hour that would result if Stewart accept the supplier's offer of $13.50 per unit for Component B18 is
The variable costs of producing B18 total $ 10.50 ($3.75 + $4.50 + $2.25). Thus, purchasing at $ 13.50 would result in a loss of $3 per bearing. Given that each bearing requires 3 hours of machine time, the loss is $1 per machine hour.
The Keego Company is planning a $200,000 equipment investment which has an estimated 5-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment.
Assuming that the estimated cash inflows occur evenly during each year, the payback period for the investment is
The payback period is the number of years required to complete the return of the original investment. The principal problems with the payback method are that it does not consider the time value of money and the inflows after the payback period. The inflow for the first year is $120,000, the second year is $60,000, and the third year is $40,000, a total of $220,000. Given an initial investment of $200,000. the payback period must be between 2 and 3 years. If the cash inflows occur evenly throughout the year, $20,000 ($200,000 ---$120,000--- $60,000) of cash inflows are needed in year 3, which is 50% of that year's total. Thus, the answer is 2.5 years.
From the view point of the investor, which of the following securities provides the least risk?
A mortgage bond is secured with specific fixed assets, usually real property. Thus, under the rights enumerated in the bond indenture, creditors will be able to receive payments from liquidation of the properly in case of default. In a bankruptcy proceeding, these amounts are paid before any transfers are made to other creditors, including those preferences. Hence, mortgage bonds are less risky than the others listed.
Industry structure and competition during the decline phase may result in intense and destructive competition. Which factor is most likely to contribute to this condition?
High exit barriers may restrain firms from leaving the industry even though their returns are poor. i For example, specialized assets and inventory in a declining industry may have a low liquidation value. Few purchasers who wish to operate in the same industry may be available. Durable assets may have a carrying amount far greater than the liquidation value. Hence, liquidation may result in a loss that the firm may not wish to recognize. Furthermore, a low liquidation value means that the future discounted cash flows from remaining in the industry may exceed the opportunity cost of the capital invested in the declining industry. Thus, the returns from the proceeds of liquidation may be less than the returns from keeping those assets in the business, the fixed costs of exit (such as contract cancelation) 11may be high, the firm is part of a group executing a larger strategy, a government discourages exit to preserve employment, or managers have an emotional tie to the business.
