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Break-even analysis B.E.C
Break-even analysis B.E.C
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Problem P13-7. Breakeven analysis a. Number of figurines = $4,000 / $8 - $6 = $4000 / $2 = 2000 b. Variable costs = $6 x 1500 = 9000 EBIT = $10000 - $4000 - $9000 = - $3000 c. Variable costs = $6 x 1500 = $9000 EBIT = $15000 - $4000 - $9000 = $2000 d. = $4,000 + $4,000 / ($8 + $6) = $8,000 / $2 = 4000 units e. In general, products that are expensive to produce tend to have higher selling prices than those that are cheaper to produce. By calculating $ 8 - ($4,000 / 1,500) = $ 5.33, it is clear that to keep the same price for all units, there will be a need to reduce the selection of the 15 types currently available to a reduced number which would include only those with an average variable cost less than $5.33. …show more content…
While taking into account the mix of the debt / equity that maximizes the price of the common stock, I assume that the optimal capital structure would be 70% equity and 30% debt. Chapter 14 Pg. 594 -599 Problem P14-2 Personal finance: Dividend payment a. The last day for Katy to purchase the stock should be Friday, May 7. b. This stock begin trading ex-dividend on Monday, May 10. c. I think the stock price should drop by $0.80 which is the amount of the dividend. d. The stock at $35 should be a better option to take the dividend. The dividend of $0.80 would probably be taxed at 15% which is the maximum rate while her short-term capital gain of $4 should be taxed at the ordinary marginal tax rate, which is probably higher than the 15%. So the marginal ordinary tax rate would be paid on the entire $4.80 of short-term capital gains if she pays $34.20 for the stock post dividend. Problem P14-11. Personal finance: Stock dividend—investor a. The firm currently earns: EPS = $80000 / 40000 = $2.00 b. Sarah currently owns: Percent ownership = 400 / 40000 =
Based on the optimal capital structure analysis, they should pursue as 70% debt proportion, which will give them the lowest cost of capital at 11.58%. Currently Star has no debt in their capital structure, so these new projects should begin to add debt to the company. However, no matter what debt and equity proportions are chosen for each project, the discount rate of 11.58% should be used, as the capital budgeting decisions should be independ...
As noted in the case, their initial payout ratio was 15%. However, when they considered increasing their dividends, they wanted the payout ratio to be 25% to 30%. The issue at hand is whether or not they can keep a consistent payout even with their drop in sales and earnings in 2003. T...
In mid September 2005, Ashley Swenson, the chief financial officer of this large CAD/CAM equipment manufacturer must decide whether to pay out dividends to the firm¡¦s shareholders or repurchase stock. If Swenson chooses to pay out dividends, she must also decide on the magnitude of the payout. A subsidiary question is whether the firm should embark on a campaign of corporate-image advertising and change its corporate name to reflect its new outlook. The case serves a review of the many practical aspects of the dividend and share buyback decisions, including(1) signaling effects, (2) clientele effects, and (3) finance and investment implications of increasing dividend payout and share repurchase decisions.
$384 per unit or "mark up" of 47% vs $764. per unit or "mark up" of 94% (not really a mark up, fixed costs not included).
Dividends are the distribution of profits in the company. It depends on the type of dividend policy made by companies. Dividend policy will affect the behaviours and attitudes of investors towards the company. Many economists or financial experts have constructed different theories to interpret the effects of a dividend policy to the society. But these theories are contestable since they are not tested in the real world. Managers’ decision on determining the size and time of a company’s next dividend payment is also important for both companies and shareholders. They will affect the company to distribute an appropriate amount of dividends in a right time. This essay will discuss whether theories of dividend payment, such as the dividend irrelevance and signalling effects are applicable in the real world. It will then describe some key factors that managers should consider on deciding the time and size of a company’s next dividend payment. Finally, it will conclude with the significance of a company’s decision on dividend payments.
Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Mr. Gary Reed, President of Signode Industries packaging division, is in a dilemma as what he should be his course of action to meet the 6.8% increase in price of cold rolled steel- the raw material used in manufacture of Signode’s primary product, steel strapping. There are few options given in the case: Increase Signode’s strapping prices to offset the increased price of cold – rolled steel. Maintain Signode’s current book prices as increasing prices would affect sales force morale. Introduce price-flex model as proposed by Jack Davis i.e. a kind of selective discounting or premium charging for customized services. Recommendations Reason: (All data in accordance to 1983) In accordance to Exhibit 1: Sales of Packaging Division of the company = $285,950 In accordance to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 Sales of HDM = 33.4% of $285,950 Sales of Customized Products = 6.5% of $285,950 In accordance to Exhibit 4: Similarly, For Apex: As it has a capacity utilization of 71% now, Suppose a sale is $100. Then contribution is $39.15 Therefore variable cost is $60.85. Now if we increase the capacity utilization to 100%, Sales becomes $ 141 since production increases by [(100-71)/71] * 100 = 41% Variable Cost = 141% of 60.85 = $85.8 Fixed Cost = 69.38% * 12.3 = $8.53 Total Cost = 85.8+8.53 = $94.33 EBIT = Sales – Variable cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sales 100x units, the total cost was 69.38. Thus per unit cost was .6938. Now the company sells 141x units, the total cost...
Before re-capitalization, the weight of debt of the Kopper’s firm is around 9.1% (172,409 / 1,889,153) and the share price is $60.50. Issuing a debt of $1,738,095,000 has changed the capital structure of the firm and the new weight of Debt is 71.8% (1,738,095 / 2,421,486). Though, the share price has decreased to $23.76 after re-capitalization, shareholders have a cash flow of $79.43 due to the dividend of $55.67 (79.43 - 23.76) paid out.
Finding the perfect capital structure in terms of risk and reward can ensure a company meets shareholder expectations and protects a firm in times of recession. Capital structure refers to how a business puts its money to “work”. The two forms of capital structure are equity capital and debt capital. Both have their benefits and limitations. Striking that perfect balance between the two can mean the difference between thriving versus trying to survive.
The four techniques used for analyzing the costs and benefits of a proposed system is break-even analysis, payback analysis, cash-flow analysis, and present value analysis. Break-even analysis is a supply-side analysis. Only the costs of the sales is analyze with break-even. It does not analyze how demand may be affected at different price levels. A strength of break-even analysis it’s relatively simple concept and the formula can be easily understood and used by most people. Another strength is that it provides vital information when making a decision. Weaknesses of break-even analysis is it assumes that all output will be sold. It is difficult to apply break-even analysis when a company sells more than one product. Break-even cannot show what will definitely happen. The payback analysis method is the simplest analysis method to use when looking at one or more major project options. It tells you how long it will takes to earn back the money you will spend on the project. Payback analysis helps you decide you whether or not you should undertake the project. The biggest strength of the payback method is that it is simple. The payback analysis method is used to make quick evaluations of projects. Weaknesses of the payback method is that the method ignores the time value of money. The payback analysis method does not consider cash inflows from a project that may occur after the initial investment has been recovered. A cash flow analysis is a listing of the flows of cash into and out of the project. This is like your checking account at your bank. Deposits are the cash inflows and withdrawals are the cash outflows. The balance in your checking account is your net cash flow at a specific point in time...
One of the most important factors to consider when deciding Mullin’s new dividend policy is its current financial position. Apart from this, the paramount objective of wealth maximization for the shareholders should be taken into consideration. It is also important to consider that dividend r...
Break even analysis is a very interesting technique which helps a finance manager to know how many units should be produced and sold at a minimum cost without losing money. So this activity is called as break even analysis. The break-even point is the minimum quantity at which loss is avoided.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
... find the discount rate of 9.8767%. Through the new discount we calculated the new share price of $56.81. The initial share price was $63.50, which was undervalued by $21.41 per share but because of the revised discount rate we find that the share price is undervalued by $14.72 per share.
o. 1. Harry Davis estimates that if it issues new common stock, the flotation cost will be 15%. Harry Davis incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, taking into account the flotation cost?
According to M-M (1961), the irrelevance dividend policy argument was based on two basic assumptions i)Perfectcapital marketand ii)Rationalinvestors. In theperfectcapital market,alltradershave equaland perfect information about the current share price and all other relevant characteristic of shares. In this perfectcapital markets thereareno transaction fees, breakage fees,taxes and other cost. Second, perfectly rational investor’s preferences are indifferent as to whether a given increment to their wealth is in the formofcash(dividendincome)or gaininmarket priceoftheshare(capitalgains). Thirdly they basetheir argument on the idea of perfect certainty, which indicates complete assurance on the part of every investor as to future investment decisions of the firm and the future profits of every corporation. Because of this assurance, there is no need to distinguish between equity share and debenture as a source of finance[7].