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Company X has a sales price of $4.00 per unit and a variable cost of $3.40 per unit; fixed costs are $13,000, no debt, and sales of 250,000 units per year. Company Y has a sales price of $10.00 per unit and a variable cost of $7.00 per unit with fixed costs of $135,000 and sales of 200,000 units per year. Company Y also has interest payments of $60,000 annually. Both companies are in the 40% tax bracket.
a. compute DOL, DFL, and DCL for Company X
b. compute DOL, DFL, and DCL for Company Y
c. compare the relative risk of both companies
Suppose that bond traders expect an increase in the federal funds rate, but the FOMC surprises them by keeping it constant. - What happens to longer-term rates?
Montana Allied Products (MAP) must borrow $1.7 million to finance its working capital requirements. The bank has offered a 45-day simple interest loan with a quoted interest rate of 8 percent. Calculate the loan’s APR and rEAR assuming there is (a) n..
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The primary test of feasibility in a reorganization is whether every claimant agrees with the reorganization plan. The basic doctrine of fairness states that all debt holders must be treated equally. Since the primary issue in bankruptcy is to determ..
the process of evaluating the project should be separated from the ranking process of the project in the portfolio the
What is the stock price and what is the price-earnings (P/E) ratio? - What is the new stock price if the firm could continue to invest exactly $1 per year forever?
You plan to retire in exactly 20 years. Your goal is to create a fund that will allow you to receive $20,000 at the end of each year for the 30 years between retirement and death. How large a fund will you need when you retire in 20 years to provide ..
Why do you think that Le Rozier SA established the subsidiary in China instead of Japan? Assume no major country risk barriers.
A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond?
A couple plans on refinancing their existing mortgage. They currently owe $150,000 (which represents 70% of the value of the house) with 15 years left on the loan and monthly payments of $1300. A new loan will be financed at the 15 year fixed rate fo..
Explain with the help of demand supply diagrams what would happen to the YTM on Initech”s bonds if the bid-ask spread on T-bonds went down (say as a result of more plentiful supply of T-bonds).
In March 2012, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $300 in March 2037, but investors would receive nothing until then. ..
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