Answer:
Check the explanation
Explanation:
Check the attached image below for:
1) Value of equity = EBIT x (1 - tax) / Cost of equity
2) Stock Price
3) PV of tax shield
Value of the firm
4) Price per share
5) No. of shares repurchased
6) New price
7) Value of equity = (EBIT - Interest) x (1 - tax) / Cost of equity
Answer:
$45.5
Explanation:
For a firm, profit is equal to total revenue minus total cost. This can be represented mathematically as follows:
π = R - C ................................................................................................... (1)
Where π represents profit, R represents total revenue and C represents total cost.
Total revenue (R) is unit selling price (P) multiply by the sales volume (S). This is represented mathematically as follows:
R = P * S ...................................................................................................... (2)
From the question, sales volume is given as follows:
S = $100 – P .............................................................................................. (3)
We then substitute for S in equation (2) and solve as follows:
R = P($100 – P) = $100P – ............................................................... (2a)
From the question, C is given as:
C = $917 + 9S .............................................................................................. (4)
We then substitute for S in equation (4) and solve as follows:
C = $917 + 9($100 – P) = $917 + $900 – 9P = $17 – 9P .................. (4a)
To derive the profit function, the solution for R in equation (2a) and the solution for C in equation (4a) are substituted into equations (1) above and then solved as follows:
π = ($100P – ) – ($17 – 9P) = $100P –
– $17 + 9P
= $100P + 9P – – $17
π = $109P – – $17 ................................................................................ (1a)
Equation (1a) is the profit function. The calculation of the derivative of the profit function (1a) with respect to the price is obtained as follows:
dπ/dP = $109 – 2P = 0 ................................................................................. (5)
From equation (5), we can solve for P as follows:
$109 – 2P = 0
$109 = 2P
2P = $109
P = $109/2
P = $54.5 ............................................................................................................ (6)
To determine the sales volume, we substitute 54.5 in equation (6) for P in the product’s sales volume (S) in equation (3) and we then solve as follows:
S = $100 – $54.5 = $45.5
Therefore, the sales volume (S) at which the firm’s profit is a maximum is $45.5.
Answer:
$1,800
Explanation:
Here Decrease or increase can be calculated as under:
Increase in Revenue $15,000
Increase in Variable Cost (72k / 100k * $15,000) ($10,800)
Increase in Promotional Cost <u> ($6,000) </u>
Net Operating Income Decrease ($1,800)
Hence the decrease in Net Operating Income would be by $1,800.
Note: As the complete question is not provided and is not found online, almost similar question was picked from the internet. So make sure you account for of the differences.
The Numerical section of the question is given as under:
