Answer:
Break-even point in units= 20,000 units
Explanation:
Giving the following information:
Selling price= $35
Unitary variable cost= $20 t
Total fixed cost= $300,000
<u>To calculate the break-even point in units, we need to use the following formula:</u>
<u></u>
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 300,000/ (35 - 20)
Break-even point in units= 20,000 units
Answer: Production is characterized by significant economies of scale is not an assumption of perfect competition (A)
Explanation:
A perfect competition is a form of market structure that has many buyers and may sellers. In a perfect competition, there is a free entry and exit for producers as there is no barrier.
Also, firms are price takers as no producer can influence the price of the goods in the market unlike in an imperfect competition which is a price maker as producers can influence price. Firms also sell identical products that are the same in quality, size etc.
In a perfect competition, production is not characterized by significant economies of scale. That is an assumption that can be found in monopoly.
Therefore, option A is the right answer.
Answer:
a) Pre-tax cost of debt is 8.45%
b) After tax cost of debt is 5.07%
Explanation:
a) Given:
Debt issue outstanding = $15.5 million
Semi-annual coupon rate = 0.063 / 2 = 0.0315
Assumed par value (FV) = $1,000
Coupon payment (pmt) = 0.0315 × 1000 = $31.5
Current bond price (PV) = 92% of $1,000 = $920
Time period (nper) = 5 × 2 = 10 periods
Calculate semi-annual rate using spreadsheet function =Rate(nper,pmt,PV,FV)
Semi-annual rate = 4.14%
Pmt and FV are negative as they are cash outflows.
YTM = 4.14 × 2 = 8.28%
Effective annual rate = 
= 
= 0.0845 or 8.45%
b) Tax rate is 40%
After tax cost of debt = Pre tax cost of debt × (1 - 0.4)
= 0.0845 × 0.6
= 0.0507 or 5.07%
Answer:
a) 17.5%
Explanation:
The computation of the simple rate of return on the investment is shown below:
Simple rate of return = Annual net income ÷ Initial investment
where,
Annual net income is
= Sales revenue - cash operating expenses - depreciation expenses
= $250,000 - $100,000 - ($400,000 ÷ 5)
= $70,000
And, the initial investment is $400,000
So, the simple rate of return is
= $70,000 ÷ $400,000
= 17.5%
Dividing the annual net income by the initial investment we can get the simple rate of return
Answer:
Explanation:
a)
The YTM of the bond at par value is equals to its coupon rate, 8.75%. Other things being equal, this 4% coupon rate bond will be more eye-catching as the coupon rate is lower than the current market yields, and its price is far below the call price. So, if yields drop, capital gains on the bond will not be restricted by the call price.
b)
If an investor foresees that yields will fall considerably, the 4% bond proposes a better expected return.
c)
Implicit call protection is offered in the sense that any likely fall in yields would not be nearly enough to make the firm consider calling the bond. In this sense, the call feature is almost irrelevant
