Finance

1. Revenue 700,000

Fixed Cost: 100,000

Deprecation: 75,000

Variable Cost: 60 %

Tax rate: 35%

((100,000+75,000)/(.40)

=$437,500

$437500 x .60= $262,500

$100,000 = $30,000= $205,000/ (1-.45) = $455,556

2.

Good Managers realize that the forecasts behind NPV calculations are imperfect. Therefore, they explore the consequences of a poor forecast and check whether it is worth doing some more homework. They use the following principal tools to answer the what if quesions:

* Sensitivity analysis: Where one variable at a time is changed.

* Scenario analysis: Where the manager looks at the project under alterative scenarios.

* Simulation analysis: An extension of scenario analysis in which a computer generates hundreds or thousands of possible combinations of variables.

* Break- even analysis: The focus is on how far sales could fall before the project begins to lose money. Often the phrase” lose money” is defined in terms of accounting losses, but it makes more sense to define it as “ falling to cover the opportunity cost of capital”, or in other words, a negative NPV.

3.

1. Common stocks are the riskiest of the three groups. When investing in common stocks, there is no guarantee that your investment will be returned. As part owner of a corporation, one will receive what is left over after the bonds and any other debts have been repaid.

2. Long- term Treasury bonds are repaid when the bond matures, but the prices fluctuate more as interest rates vary. When interest rates fall, the value of the long-term bond rises; when the rates rise, the value of the bond will fall.

3. Treasury bills are the safest investment one can make. Since the government issues them, you will be guaranteed to receive ones money back. Due to their short term in maturity, there are relatively stable.

4. ($1.5+$28.50)/$30= 0