Reference no: EM133060830

Questions -

Q1. Break Even Analysis - Barry Carter is considering opening a video store. He wants to estimate the number of DVDs he must sell to break even. The DVDs will be sold for $13.98 each, variable operating costs are $10.48 per DVD, and annual fixed operating costs are $73,000.

A. Find the operating break even point in number of DVDs.

B. Calculate the total operating costs at the break even volume found in part a.

C. If Barry estimates that at a minimum he can sell 2,000 DVDs per month, should he go into the video business?

D. How much EBIT will Barry realize if he sells the minimum 2,000 DVDs per month noted in part c?

Q2. Float - Simon Corporation has daily cash receipts of $65,000. A recent analysis of its collections indicated that customers' payments were in the mail an average of 3 days. Once received, the payments are processed in 2 days. After payments are deposited, it takes an average of 2.5 days for these receipts to clear the banking system.

A. How much collection float (in days) does the firm currently have?

B. If the firm's opportunity cost is 9%, would it be economically advisable for the firm to pay an annual fee of $16,500 for a lockbox system in the reduce collection float by days?

C. What would the company's opportunity cost have to be to make the $16,500 fee worthwhile?