Understanding Breakeven Analysis: A Numerical Approach

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.

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 =