Fin 419 Week 5 Team Assignment with Answers

Principles of Managerial Finance FIN/419 P12. 4 Break nonetheless(prenominal) analysis. Barry Carter is considering opening a music store. He wants to estimate the issuance of CDs he must sell to break even. The CDs pass on be sold for $13. 98 each, variable operating be are $10. 48 per CD, and annual sway-still operating be are $73,500. A) Find the operating breakeven position in number of CDs. Q= FC / P- VC Q= 73,500 / 13. 98 10. 48 Q= 21,000 CDs B) Calculate the total operating be at the breakeven volume found in part a. EBIT= Q x (P VC) FC EBIT= 21,000 x (13. 98 10. 48) 73,500 EBIT= 21,000 x 3. 5 73,500EBIT= 0 C) If Barry estimates that at a borderline he pot sell 2,000 CDs per month, should he go into the music military control? 2,000 CDs per month x 12 months = 24,000 CDs. Since the operating breakeven point in number of CDs is 21,000, this means that Barry go out sell 3,000 more CDs that will be a sugar. Depending on Barrys outcome of the music store, if h e were to go into the music business and sell 2,000 CDs a month, he would make a profit. The profit would not be that much more above the operating breakeven point however, it will still be a profit. I would take the adventure and go into the music business.D) How much EBIT will Barry realize if he sells the stripped-down 2,000 CDs per month noted in part c? EBIT= Q x (P VC) FC EBIT= 24,000 x (13. 98 10. 48) 73,500 EBIT= 24,000 x 3. 5 73,500 EBIT= 10,500 P12-11 a. $0. 38 b. $1. 28 c. $1. 94 Ebit $24,600 $30,600 $35,000 less interest $9,600 $9,600 $9,600 mesh topology profits before valuees $15,000 $21,000 $25,400 Les Taxes $6,000 $8,400 $10,160 Net profits after(prenominal) taxes $9,000 $12,600 $15,240 Less preferred stock dividends $7,500 $7,500 $7,500 Earings available for uncouth $1,500 $5,100 $7,740 Earings per share $0. 8 $1. 28 $1. 94 a b c P12-24. Integrativeoptimum capital structure Intermediate a. Debt Ratio 0% 15% 30% 45% 60% EBIT $2,000,00 0 $2,000,000 $2,000,000 $2,000,000 $2,000,000 Less Interest 0 120,000 270,000 540,000 900,000 EBT $2,000,000 $1,880,000 1,730,000 $1,460,000 $1,100,000 ? Taxes 40% 800,000 752,000 692,000 584,000 440,000 Net profit $1,200,000 $1,128,000 $1,038,000 $ 876,000 $ 660,000 Less Preferred dividends 200,000 200,000 200,000 200,000 200,000 Profits available to ?common stock $1,000,000 $ 928,000 $ 838,000 $ 676,000 $ 460,000 shares outstanding 200,000 170,000 140,000 110,000 80,000 EPS $ 5. 00 $ 5. 46 $ 5. 99 $ 6. 15 $ 5. 75 b. Debt 0%Debt 15% Debt 30%Debt 45% Debt 60% c. The optimal capital structure would be 30% debt and 70% equity because this is the debt/equity mix that maximizes the price of the common stock. Chapter 16 Problem 16. For each of the add amounts, interest rates, annual softenments, and loan terms shown in the following table, calculate the annual interest give each year over the term of the loan, assuming that the payments are make at the end of each year. Loan Amount Rate yearbook Payment Term (in years) Interest Paid stratum 1 Year 2 Year 3 Year 4 Year 5 Year 6 A $14,000 10% $4,416 4 $1400 $1098. 40 $766. 64 $401. 70 B 17,500 12% 10,355 2 2100 1109. 40 C 2,400 13% 1,017 3 312 220. 35 116. 79 D 49,000 14% 14,273 5 6860 5822. 18 4639. 06 3290. 31 1752. 3 E 26,500 16% 7191 6 4240 3767. 84 3220. 13 2584. 80 1847. 80 992. 89 Problem 16. 5 Lease versus buy northwesterly Lumber Company needs to expand its facilities. To do so, the stanch must acquire a machine costing $80,000. The machine can be leased or leveragingd. The sign is in the 40% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease and get plans are as follows Lease The leasing arrangement requires end-of-year payments of $19,800 over 5 years. All maintenance cost will be paid by the lessor insurance and other costs will be borne by the lessee.The lessee will exercise its choice to purchase the asset for $24,000 at t ermination of the lease. Purchase If the firm purchases the machine, its cost of $80,000 will be financed with a 5-year, 14% loan requiring equal end-of-year payments of $23,302. The machine will be depreciated under MACRS using a 5-year recovery period. (See Table 3. 2 on page 108 for the applicable depreciation percentages. ) The firm will pay $2,000 per year for a service contract that covers all maintenance costs insurance and other costs will be borne by the firm.The firm plans to keep the equipment and use it beyond its 5-year recovery period. a. Determine the after-tax cash springs of Northwest Lumber under each alternative. Year Lease after-tax outflows Purchase after-tax outflows 1 $11,880 $13,622 2 11,880 10,459. 71 3 11,880 15,391. 10 4 11,880 18,512. 89 5 35,880 19,516. 93 b. Find the present value of each after-tax cash outflow stream, using the after-tax cost of debt. Year PV of outflows (Lease) PV of outflows (Purchase) 1 $10,893. 96 $12,491. 37 2 10,002. 96 8,807 3 9,171. 6 11,881. 93 4 8,411. 04 13,107. 13 5 23,322 12,686. 00 Total $61,801. 32 $58,973. 51 c. Which alternativelease or purchasewould you recommend? Why? The alternative that I would recommend is the purchase option because it has the lower present value of after-tax cash outflows as well as the most desirable. It is the most desirable because by purchasing the machine would be a less costly alternative. References Gitman, L. J. (2009). Principles of Managerial Finance (12th ed. ). Retrieved from https//ecampus. phoenix. edu/ substance/eBookLibrary2/content/eReader. aspx.