Question

In: Finance

Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed costs,...

Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $6 million. The firm estimates that it can change its production process, adding $3 million to assets and $310,000 to fixed operating costs. This change will reduce variable costs per unit by $12,000 and increase output by 22 units. However, the sales price on all units must be lowered to $88,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 13%, and it uses no debt.

a. What is the incremental profit? Round your answer to the nearest dollar.____

To get a rough idea of the project's profitability, what is the project's expected rate of return for the next year (defined as the incremental profit divided by the investment)? Round your answer to two decimal places.______%

Should the firm make the investment?
Options: Yes or No?

b. Would the firm's break-even point increase or decrease if it made the change?

The change would increase or decrease the break-even point?

c. Would the new situation expose the firm to more or less business risk than the old one?

I. The new situation would obviously have more business risk than the old one.
II. The new situation would obviously have less business risk than the old one.
III. It is impossible to state unequivocally whether the new situation would have more or less business risk than the old one.

Options: I,II, or III?

b.

Solutions

Expert Solution


Related Solutions

Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's...
Break-Even Point Schweser Satellites Inc. produces satellite earth stations that sell for $105,000 each. The firm's fixed costs, F, are $1 million, 50 earth stations are produced and sold each year, profits total $400,000, and the firm's assets (all equity financed) are $4 million. The firm estimates that it can change its production process, adding $3 million to assets and $400,000 to fixed operating costs. This change will reduce variable costs per unit by $12,000 and increase output by 15...
Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's...
Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2.5 million, 50 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 $5 million to assets and $570,000 to fixed operating costs. This change will reduce variable costs per unit by $12,000 and increase output by 20...
Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's...
Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $400,000; and the firm's assets (all equity financed) are $4 million. The firm estimates that it can change its production process, adding $3.5 million to investment and $370,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $12,000 and (2) increase output...
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each....
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $3 million to assets and $490,000 to fixed operating costs. This change will reduce variable costs per unit by $10,000 and increase output...
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each....
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $3 million to assets and $490,000 to fixed operating costs. This change will reduce variable costs per unit by $10,000 and increase output...
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each....
Problem 15-07 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm's fixed costs, F, are $2 million, 50 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 $5 million to assets and $430,000 to fixed operating costs. This change will reduce variable costs per unit by $12,000 and increase output...
Gamut Satellite Inc. produces satellite earth stations that sell for $150,000 each. The firm’s fixed costs,...
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,...
Two satellites are in circular orbits around the earth. The orbit for satellite A is at...
Two satellites are in circular orbits around the earth. The orbit for satellite A is at a height of 555 km above the earth’s surface, while that for satellite B is at a height of 778 km. Find the orbital speed for (a) satellite A and (b) satellite B.
Two satellites are in circular orbits around the earth. The orbit for satellite A is at...
Two satellites are in circular orbits around the earth. The orbit for satellite A is at a height of 458 km above the earth’s surface, while that for satellite B is at a height of 732 km. Find the orbital speed for (a) satellite A and (b) satellite B.
Earth Satellites Table of Earth Satellites ISS Hubble GPS Geosynchronous satellite Moon h (miles); height above...
Earth Satellites Table of Earth Satellites ISS Hubble GPS Geosynchronous satellite Moon h (miles); height above earth's surface 248 12550 r (m) 54.5 3.85 x 108 v(m/s) 7.56 x 103 T(s); period 4.32 x 104 8.62 x 104 days/revolution 1.0 Revolutions/day 1.0
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT