Fin 419 Week 5 Team Assignment with Answers

Standards of Managerial Finance FIN/419 P12. 4 Break even examination. Barry Carter is thinking about opening a music store. He needs to gauge the quantity of CDs he should offer to make back the initial investment. The CDs will be sold for $13. 98 every, factor working expenses are $10. 48 for each CD, and yearly fixed working expenses are $73,500. A) Find the working breakeven point in number of CDs. Q= FC/P-VC Q= 73,500/13. 98 †10. 48 Q= 21,000 CDs B) Calculate the complete working expenses at the breakeven volume found to some degree a. EBIT= Q x (P †VC) †FC EBIT= 21,000 x (13. 98 †10. 48) †73,500 EBIT= 21,000 x 3. 5 †73,500 EBIT= 0 C) If Barry gauges that at the very least he can sell 2,000 CDs for each month, would it be advisable for him to go into the music business? 2,000 CDs for every month x a year = 24,000 CDs. Since the working breakeven point in number of CDs is 21,000, this implies Barry will sell 3,000 additional CDs that will be a benefit. Contingent upon Barry’s result of the music store, if he somehow managed to go into the music business and sell 2,000 CDs per month, he would make a benefit. The benefit would not be significantly more over the working breakeven point; be that as it may, it will even now be a benefit. I would take the risk and go into the music business. D) How much EBIT will Barry acknowledge whether he sells the base 2,000 CDs for each month noted to some degree c? EBIT= Q x (P †VC) †FC EBIT= 24,000 x (13. 98 †10. 48) †73,500 EBIT= 24,000 x 3. 5 †73,500 EBIT= 10,500 P12-11 a. $0. 38 b. $1. 28 c. $1. 94 Ebit| | $24,600| $30,600| $35,000| less interest| | $9,600| Net benefits before taxes| | $15,000| $21,000| $25,400| Les Taxes| | $6,000| $8,400| $10,160| Net benefits after taxes| | $9,000| $12,600| $15,240| Less favored stock dividends| $7,500| Earings accessible for common| | $1,500| $5,100| $7,740| Earings per share| | $0. 8| $1. 28| $1. 94| | a| b| c| P12-24. : Integrativeâ€optimal capital structure Intermediate a. Obligation Ratio| 0%| | 15%| | 30%| | 45%| | 60%| EBIT| $2,000,000| | $2,000,000| | $2,000,000| | $2,000,000| | $2,000,000| Less: Interest| 0| | 120,000| | 270,000| | 540,000| | 900,000| EBT| $2,000,000| | $1,880,000| | 1,730,000| | $1,460,000| | $1,100,000| ? Duties @40%| 800,000| | 752,000 | | 692,000| | 584,000| | 440,000| Net profit| $1,200,000| | $1,128,000| | $1,038,000| | $ 876,000| | $ 660,000| Less: Preferred dividends| 200,000| | 200,000| | 200,000| | 200,000| | 200,000| Profits accessible to ?regular stock| $1,000,000| | $ 928,000| | $ 838,000| | $ 676,000| | $ 460,000| # shares outstanding| 200,000| | 170,000| | 140,000| | 110,000| | 80,000| EPS| $ 5. 00| | $ 5. 46| | $ 5. 99| | $ 6. 15| | $ 5. 75| b. Obligation: 0%Debt: 15% Debt: 30%Debt: 45% Debt: 60% c. The ideal capital structure would be 30% obligation and 70% value since this is the obligation/value blend that amplifies the cost of the normal stock. Part 16 Problem 16. For every one of the advance sums, financing costs, yearly installments, and credit terms appeared in the accompanying table, ascertain the yearly intrigue paid every year over the term of the advance, expecting that the installments are made toward the finish of every year. Loan| Amount| Rate| Annual Payment| Term (in years)| Interest P aid Year 1| Year 2| Year 3| Year 4| Year 5| Year 6| A| $14,000| 10%| $4,416| 4 | $1400| $1098. 40| $766. 64| $401. 70| | B| 17,500| 12%| 10,355| 2| 2100| 1109. 40| | C| 2,400| 13%| 1,017| 3| 312| 220. 35| 116. 79| | D| 49,000| 14%| 14,273| 5| 6860| 5822. 18| 4639. 06| 3290. 31| 1752. 3| | E| 26,500| 16%| 7191| 6| 4240| 3767. 84| 3220. 13| 2584. 80| 1847. 80| 992. 89| Problem 16. 5 Lease versus buy Northwest Lumber Company needs to extend its offices. To do as such, the firm should gain a machine costing $80,000. The machine can be rented or bought. The firm is in the 40% duty section, and its after-charge cost of obligation is 9%. The provisions of the rent and buy plans are as per the following: Lease The renting game plan requires end-of-year installments of $19,800 more than 5 years. All upkeep costs will be paid by the lessor; protection and different costs will be borne by the tenant. The renter will practice its alternative to buy the benefit for $24,000 at end of the rent. Buy If the firm buys the machine, its expense of $80,000 will be financed with a 5-year, 14% credit requiring equivalent finish of-year installments of $23,302. The machine will be deteriorated under MACRS utilizing a 5-year recuperation period. (See Table 3. 2 on page 108 for the appropriate deterioration rates. ) The firm will pay $2,000 every year for a help contract that takes care of all upkeep costs; protection and different costs will be borne by the firm. The firm intends to keep the hardware and use it past its 5-year recuperation period. a. Decide the after-charge money surges of Northwest Lumber under every other option. Year| Lease after-charge outflows| Purchase after-charge outflows| 1| $11,880| $13,622| 2| 11,880| 10,459. 71| 3| 11,880| 15,391. 10| 4| 11,880| 18,512. 89| 5| 35,880| 19,516. 93| b. Locate the current estimation of each after-charge money surge stream, utilizing the after-charge cost of obligation. Year| PV of surges (Lease)| PV of outpourings (Purchase)| 1| $10,893. 96| $12,491. 37| 2| 10,002. 96| 8,807| 3| 9,171. 6| 11,881. 93| 4| 8,411. 04| 13,107. 13| 5| 23,322| 12,686. 00| Total| $61,801. 32| $58,973. 51| c. Which alternativeâ€lease or purchaseâ€would you suggest? Why? The elective that I would suggest is the buy alternative since it has the lower present estimation of after-charge money surges just as the most alluring. It is the most attractive on the grounds that by buying the machine would be a less expensive other option. References Gitman, L. J. (2009). Standards of Managerial Finance (twelfth ed. ). Recovered from https://ecampus. phoenix. edu/content/eBookLibrary2/content/eReader. aspx.