US Auto Company would like to offer rebates to its customers in order to increase sales. If it lowers prices sales will increase.    This will depend on the price elasticity of demand. Assume that the price elasticity of demand is 1.5. This firm is considering a $400 rebate on its cars. Also assume the following information on prices and costs before the rebates:

          Average price per car                                   $9,000 per car

          Expected sales volume at $9,000) per car     1,000,000 cars

          Average total costs per car                           $8,200 per car

          Total variable cost                                         $6,400,000,000

• Calculate the present total fixed costs, average variable costs and average fixed costs.
• What is the present breakeven point?
• What is the change in revenue resulting from the $400 price reduction?
• What is the effect on the cost per car after the change? In other words what is the average cost per car after the change?
• Should the change be made?

Please show the calculation. Thank you.

NBM has $2 million of extra cash. It has two choices to make use of the cash. One alternative is to invest the cash in financial assets. The resulted investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 7%, or an 11% preferred stock. The tax law says only 30% of the dividend from the preferred stock investment would be subject to the corporate income tax. Another alternative is to pay out the cash as dividends and let the share holders invest on their own in T-bills with the same yield. The corporate tax rate is 35%, and the individual tax rate is 31%. Should the cash be paid today or in three years? Which of the two options generates the highest after-tax income for share holders?

Please show the calculation. Thank you

Some friends of yours have just had a child. Thinking ahead, and realizing the power of compound interest, they are considering investing for their child’s college education, which will begin in 18 years. Assume that the cost of a college education today is $150,000. Also assume there is no inflation and no tax on interest income used to pay college tuition and expenses.

Instructions: Enter your responses rounded to the nearest dollar.

a. If the interest rate is 3 percent, how much money will your friends need to put into their savings account today to have $150,000 in 18 years?

They would need to put $   into their savings account today.

b. What if the interest rate were 7 percent?

They would need to put $  into their savings account today.

c. The chance that the price of a college education will be the same 18 years from now as it is today seems remote. Assuming that the price will rise 4 percent per year, and that today’s interest rate is 8 percent, what will your friends' investment need to be?

The amount of the investment would be $  .

d. Return to the case with a 3 percent interest rate and no inflation (part a). Assume that your friends don’t have enough financial resources to make the entire investment at the beginning. Instead, they think they will be able to split their investment into two equal parts, one invested immediately and the second invested in five years. What is the amount of each part?

The required size of the two investments would be $  .

Question:

a) Explain clearly why working capital management is very important in finance?

b) Discuss the statement that wealth maximization is a better corporate objective than profit maximization.

Camping World is an American corporation specializing in selling recreational vehicles, recreational vehicle parts, and recreational vehicle service. They also sell supplies for camping. The company has its headquarters in Lincolnshire, Illinois. Due to differing competitive conditions, the price that Camping World charges for their products varies in each city. The price they charge for a particular sleeping bag in each city (in dollars) is provided in the table below, along with the number of sleeping bags that Camping World sold last quarter in each city.

Calculate the average selling price per sleeping bag during the last quarter. (round your answer to 2 decimal places, using conventional rounding rules)

ANSWER: $  per sleeping bag

If You Want Small Business Success, Know How To Measure It... Name at least 5 things that you need to evaluate a business performance evaluation?

4.9

Broward Manufacturing recently reported the following information:

Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places.

BEP:   %

ROE:   %

ROIC:   %

What hurdle rate issue arises when evaluating leveraged buyouts.

What is the appropriate hurdle rate that the analyst should use?

When the acquirer and the target company operate in different industries, what hurdle rate issue arises?

4.13

Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 1.3×
Days sales outstanding: 36.5 days^a
Inventory turnover ratio: 4×
Fixed assets turnover: 3.0×
Current ratio: 2.0×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 35%
^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

4.11

Assume the following relationships for the Caulder Corp.:

Calculate Caulder's profit margin and debt-to-capital ratio assuming the firm uses only debt and common equity, so total assets equal total invested capital. Do not round intermediate calculations. Round your answers to two decimal places.

Profit margin:   %

Debt-to-capital ratio:   %

A stock is currently trading for $32. The company has a price–earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $42. The company announces that it will use $350 million to repurchase shares.

1. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   $  

2. After the repurchase, what is the actual price–earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places.

3. If the company had used the $350 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.

   The market value of the stock is now $   .

4. If the company had used the $350 million to pay a cash dividend instead of doing a repurchase, what would be the actual price–earnings multiple after the dividend? Do not round intermediate calculations. Round your answer to two decimal places.

Instead, let’s talk about sales mix. This relates to the mix of products. How do changes in the mix of products impact breakeven? How could a shift in sales mix result in both a higher breakeven point and a lower net income? Use specific examples from a company you know something about. (for instance, for Apple you could do laptop vs. I-series items) What are the assumptions underlying sales mix and cost volume profit that are potentially misleading?

Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $55,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that if inflation occurs the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 6% per year from today forward. He currently has $50,000 saved and expects to earn a return on his savings of 7% per year with annual compounding. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity.) Do not round intermediate calculations. Round your answer to the nearest dollar.