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Gamut Satellite Inc. produces satellite earth stations that sell for $150,000 each. The firm's fixed costs, F, are $1.5 million, 20 earth stations are produced and sold each year, profits total $400,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $10 million to assets and $500,000 to fixed operating costs. This change will reduce variable costs per unit by $5,000 and increase output by 30 units. However, the sales price on all units must be lowered to $140,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 18%, and it uses no debt. Problem 1: Determine the variable cost per unit Problem 2: Determine the new profit if the change is made Problem 3: What is the incremental profit? Problem 4: What is the projects expected rate of return for the next year (defined as the incremental profit divided by the investment)? Problem 5: Should the firm make the investment? Why or why not? Problem 6: Would the firm's break-even point increase or decrease if it made the change? Problem 7: Would the new situation expose the firm to more or less business risk than the old one? Show workings
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Suppose that an annuity pays 20 annual payments of $1540, with the first payment coming 11 years from now. What is the present value of the annuity
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Why do businesses prepare reversing entries? What is the difference between subsequent and reversing entries? Provide the suitable example.
Denominator-level problem. Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. Calculate the budgete..
Hudson Corporation will pay a dividend of $2.74, If you require a return of 12 percent on your investment, how much will you pay for the company's stock today?
Zany projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Actual variable costs, budgeted at $15.00 per unit, totaled $14.00 per unit. Budgeted fixed costs totale..
What are some of the major advantages of the partnership business form? Why might the partners prefer this form of organization over a corporation?
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