Bsa409 Week 7 Problems

Week 7 Problems From the Text

BSA409 Economics

May 31, 2015

Chapter 14 Problem 14-6

Selling Price per unit $25

Total Fixed Cost $140,000

Variable Cost per unit $15

Total units sold 8,000

a. Calculating Gain/Loss at 8,000 units Sales:

Sales (8,000 * $25) $200,000

Less: VC (8,000 * $15) $120,000

Contribution $80,000

Less: Fixed Cost $140,000

Loss ($60,000)

Calculating Gain/Loss at 18,000 units Sales:

Sales (18,000 * $25) $450,000

Less: VC (18,000 * $15) $270,000

Contribution $180,000

Less: Fixed Cost $140,000

Profit $40,000

b. Calculating Break-even Point:

Fixed Operating Costs = $140,000

Variable Cost per unit = $15 per watch

Selling Price per unit = $25 per watch

Break-even Point (in units) = Total Fixed Costs / Contribution Margin per unit

Break-even Point (in units) = $140,000 / ($25-$15)

Break-even Point (in units) = 14,000 units

c. Calculating Break-even point if the selling price were raised to $31:

Break-even Point (in units) = $140,000 / ($31-$15)

Break-even Point (in units) = 8,750 units

d. Calculating Break-even point if the selling price were raised to $31 and variable costs rose $23

Break-even Point (in units) = $140,000 / ($31-$23)

Break-even Point (in units) = 17,500 units

Chapter 14 Problem 14-8

Cost of Equity = Riskfree rate + (Market Risk Premium)(Leveraged Beta)

14 = 5% + (6%)(Beta leveraged at 25% Debt)

Beta leveraged for 25% Debt = 1.5

Unleveraged Beta = (Leveraged Beta)/[1+(1-T)(D/E)]

= 1.5/[1+(1-40%)(25%/75%)]

= 1.25

Beta leveraged at 50% Debt = 1.25x[1+(1-40%)(50%/50%)]

= 2

Cost of equity, rs= Riskfree rate + (Market Risk Premium)(Beta leveraged at 50% Debt)

= 5% + (6%)(2)

= 17%

Chapter 15 Problem 15-1

Net Income | | 2,000,000.00 |

| | |

Retained Earnings ( 30% * 3,000,000 ) | | 900,000.00 |

| | |

Dividends Paid | | 1,100,000.00 |

| | |

Dividend per share ratio | | Dividends paid / Equity Capital |

| | |

| | 1,100,000 / 900,000 |...