BREAK-EVEN ANALYSIS

1. The quantity for a 17-inch LCD TV is 20,000 at a price of Php25,000, while 45,000 is demanded for the price of Php15,000. Assuming a linear relationship between price and quantity, which of the following models the price-quantity function of the LCD TV?

2. A young entrepreneur is willing to supply 60 pieces of personalized baller band at a price of Php80 and 100 at a price of Php110. Assuming a linear relationship between price and quantity, which of the following models the price-quantity function of the baller band?

3. Suppose that the demand function for a certain brand of shampoo is D(x) = -1.25x + 525. What is the highest price anyone will be willing to pay for the shampoo?

4. The cost and revenue function for a particular brand of bag are C(x) = 6x + 3 and R(x) = 19 - 2x. What is the break even point?

5.Let the supply and demand functions for yogurt ice cream be given by S(x) = 0.4x and D(x) = 100 - 0.4x, respectively. What is the equilibrium quantity and price?

6-8. The financial research department of a company that manufactures earphones determine its cost function as C(x) = 120x + 3900. The company sells the earphone at Php250 each.  

6.            How many earphones must be sold to realize a profit of Php150,020?

7.            What is the profit from the sale of 250 units?

8.            What is the break-even quantity?  '

9-10 A baker sells her cakes at Php 285 per piece selling all that she produces. Her fixed cost is Php 4,500 and her variable cost is Php 92 per piece.

9. With how many cakes will she break even?

10. With how many cakes will she enjoy a profit of Php 5,000? A loss of Php 1,000?

An all equity firm is expected to generate perpetual EBIT of $100 million per year forever. The corporate tax rate is 35%. The firm has an unlevered (asset or EV) Beta of 0.8. The risk-free rate is 4% and the market risk premium is 6%. The number of outstanding shares is 10 million.

1. The firm decides to replace part of the equity financing with perpetual debt. The firm will issue $100 million of permanent debt at the riskless interest rate of 4%, and use this $100 million of proceeds to repurchase the same amount of common stock.

A. Find the new value of the levered firm following this capital structure change.

B. Find the new number of shares outstanding, and the new share price.

Pearson Ltd is financed through the following sources:

• ? Ordinary share: 100 million shares outstanding, with current market price of

  one share at $2.2

• ? Bank loan: $100 million borrowed from ANZ bank with an interest rate of 6%

• ? Corporate bond: Pearson’s corporate bond is currently trading at 80% of its

  face value. The bonds pay coupons once per annum and have a total book value of $100 million. The current yield to maturity on the bond is 8% per annum.

  The risk-free rate is 3% and the market risk premium is 6%. It is estimated that Pearson has an equity beta of 1.5. Assume corporate tax rate is 30%, calculate the WACC for Pearson Ltd.

Table 1

For questions 15,16 and 17 refer to Table 1

15. Suppose the $ is devalued: we go from Yen = $1/100 to Yen = $1/10. What is the elasticity of demand for imports in the USA?

    1. 0

    2. 1

    3. 0.5

    4. -0.5

16. Suppose the $ is devalued: we go from Yen = $1/100 to Yen = $1/10. What is the elasticity of demand for imports in Japan?

    1. 0

    2. 1.11

    3. 0.11

    4. 2.22

17. Does the Marshal-Lerner condition hold in this example?

    1. Yes

    2. No

    3. Maybe

    4. Not enough information

1.

In the neo-classical model, the aggregate supply curve has three ranges depending on how far the economy is from full employment.

a. True

b. False

2.  

Suppose you are given the following fixed-price Keynesian model:

C = 480 + 0.9Yd

I = 200

G = 100

X = 200

M = 100 + 0.1Yd

T = 100.

What is the equilibrium level of GDP?

3.  

In the question above, at equilibrium the level of consumption spending is $3990

a. True

b. False

4.

The aggregate demand curve can be derived by looking at different levels of output along the production function.

True

False

1. The demand for Apples (Qa) is given by Qa = 100 - 1Pa + .5Pb - 0.01I, where Pa is the price of Apples, Pb is the price of Bananas, and I is the income.
   1. Calculate the price elasticity demand for Apples when Pa is between 2 and 3, Pb = 1, and I = 500. Is the demand for Apples elastic, unit-elastic, or inelastic?
   2. Calculate the cross-price elasticity demand for Apples when Pb is between 1 and 2, Pa = 2, and I = 500. Are Apples and Bananas substitutes or complement goods?
   3. Calculate the income elasticity demand for Apples when I is between 500 and 1,000, Pa = 2, and Pb = 1. Are Apples normal or inferior goods?

The demand for Apples (Qa) is given by Qa = 100 - 1Pa + .5Pb - 0.01I, where Pa is the price of Apples, Pb is the price of Bananas, and I is the income. a. Calculate the price elasticity demand for Apples when Pa is between 2 and 3, Pb = 1, and I = 500. Is the demand for Apples elastic, unit-elastic, or inelastic? b. Calculate the cross-price elasticity demand for Apples when Pb is between 1 and 2, Pa = 2, and I = 500. Are Apples and Bananas substitutes or complement goods? c. Calculate the income elasticity demand for Apples when I is between 500 and 1,000, Pa = 2, and Pb = 1. Are Apples normal or inferior goods?

3- In a perfectly competitive market the demand and supply functions for a product is given by
?? = 200 − 4?
?? = −100 + 6?
Now suppose that the government taxes the good by a unit tax of 5TL.
a) Find the price that demanders pay and the price that suppliers receive when buyers are
responsible to pay for the tax. Find the total tax collection and the deadweight loss from
this taxation policy. Show your analysis explicitly on a graph. (15 Pts)
b) Find the price that demanders pay and the price that suppliers receive when sellers are
responsible to pay for the tax. Find the total tax collection and the deadweight loss from
this taxation policy. Show your analysis explicitly on a graph. (15 Pts)

Assume the demand function for SeatComfy's table chairs is Q = 5,000 -25P + 4I +10P_A-15P_T. Moreover, assume that currently P = 10, P_A = 15, I = 500, P_T = 100. Which of the following is true?

Select one:

A. If SeatComfy increases its price by 1 percent, sales as well as total revenues will decrease.

B. If SeatComfy decreases its price by 1 percent, sales will increase, while total revenues will decrease.

C. If SeatComfy increases its price by 1 percent, sales will decrease, while total revenues will increase.

D. If SeatComfy increases its price by 1 percent, sales as well as total revenues will increase.

The Carrot Investment Bank has the following financing outstanding. What is the WACC for the company?

Debt: 70,000 bonds with a coupon rate of 8 percent and a current price quote of 110.5; the bonds have 20 years to maturity. 300,000 zero coupon bonds with a price quote of 18.5 and 30 years until maturity.

Preferred Stock: 200,000 shares of 5 percent preferred stock with a current price of $80, and a par value of $100

Common Stock: 3,000,000 shares of common stock, the current price is $70, and the beta of the stock is 1.15

Market: The corporate tax rate is 40 percent, the market risk premium is 7 percent, and the risk free rate is 4 percent