6.

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $377,400, and the sales mix is 20% bats and 80% gloves. The unit selling price and the unit variable cost for each product are as follows:

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

7.

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California; and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. If required round the answers to nearest whole number.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product, E. Assume that the overall product is 10% business class and 90% economy class seats.

b. How many business class and economy class seats would be sold at the break-even point?

8.

Margin of Safety

a. If Canace Company, with a break-even point at $518,400 of sales, has actual sales of $810,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $ 291,600

2. 36 %

b. If the margin of safety for Canace Company was 45%, fixed costs were $1,871,100, and variable costs were 55% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$ ___________________________

Question 1 You observe that the current three-year discount factor for default-risk free cash flows is 0.68. Remember, the t-year discount factor is the present value of $1 paid at time t, i.e. ?t = (1 + ?)−?, where ???? is the t-year spot interest rate (annual compounding). Assume all bonds have a face value of $100 and that all securities are default-risk free. All cash flows occur at the end of the year to which they relate.

a) What is the price of a zero-coupon bond maturing in exactly 3 years?

b) Your friend makes the following observation about the above bond: “Since there is no risk of default and there are no coupons to re-invest, buying the 3-year zero coupon bond today is a risk-free investment; that is, you are guaranteed to earn an annual return of 13.72% (i.e. 3-year spot rate)”. Explain why your friend is not entirely correct and how you would modify the statement to make it correct.

c) In addition to the bond in (a), you observe the following: a 2-year coupon bond paying 10% annual coupons with a market price of $97, and two annuities that are trading at the same market price as each other. The first annuity matures in 3 years and pays annual cash flows of $20, while the second annuity pays annual cash flows of $28 and matures in 2 years. Using this information:

i. Complete the term structure of interest rates, i.e. determine the one- and two-year discount factors, d1 and d2, respectively.

ii. Determine the price of the annuities. d) Assuming annual compounding, determine the implied one-period forward rates ??2 (i.e. between year 1 and 2) and ??3 (i.e. between year 2 and 3) in this economy. What inference can you make about the market’s estimate of the one-year spot interest rate at ?? = 1 if the liquidity preference theory is correct?

e) Suppose you decide to purchase a 1-year zero-coupon bond today and also contract today to re-invest the proceeds from the bond for the following two years at 16.5% per year. Show that this arrangement presents an arbitrage opportunity. Demonstrate how you would take advantage of this opportunity.

f) Consider discount factors such that d1 < d2 < d3. Explain why it would be odd to observe such a situation in a competitive market.

1. Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR=MC at 1200 units of output. At 1200 units, atc is $23 and avc is $18. The best policy for this firm is to ___ in the short run. Also, this firm earns ___ of ___ if it produces and sells 1200 units. a.shut down, losses, 15,600 b.shut down, losses, 9,600 c.continue to produce, losses, $15,600 d.continue to produce, profits, $15,600

2. Ultimately, market supply curves are upward sloping because of a.the law of diminishing marginal returns b.economies of scale c.average fixed cost falling continually as more output is produced d.the law of the short-run marginal cost revenue e.specialization

3. The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to a.supply at different prices after the entry and exit of firms is completed b.supply at a single price after the entry and exit of firms is completed c.purchase at different prices after the entry and exit of firms is completed d.purchase at different prices after the entry of firms is completed e.supply at different prices after the exit of firms is completed

4. When an industry is described as a decreasing-cost, increasing-cost, or constant-cost industry, the “cost” that is being referred to is a.marginal cost b.average total cost c.average variable cost d.sunk cost e.fixed cost

5. Which of the following comments is true? A.a perfectly competitive firm that seels to maximize profits will not be resource-allocative efficient b.If the demand curve and the marginal revenue curve weren’t the same curve for a perfectly competitive firm, then the firm would not be resource-allocative efficient c.resource allocative efficiency exists when a firm produces its output at the lowest possible per-unit cost (lowest atc) d.productive efficiency exists when firms produce the quantity of output at which price equals marginal cost e.c and d

6. A public franchise is a right granted a.to one firm by another firm, for example, McDonalds corporation grants restaurant owners a franchise to make its hamburgers b.to a firm by gov. that prevents other firms from producing the same product or service c.to a cooperative of buyers that allows the group to purchase goods at wholesale prices d.by gov. That enables a person to engage in arbitrage

7. Which of the following is the best example of a barrier to entry into a monopolistic industry? A.diminishing returns b.comparative advantage c.high elasticity of demand d.a public franchise

8. Which of the following is not an example of a legal barrier industry? A.beautician’s license b.patent c.exclusive ownership of raw materials d.public franchise e.copyright

9. A monopolist can sell 16000 units at a price of $100 per unit. Lowering price by $1 raises the quantity of demand by 500 units. What is the change in total revenue resulting from this price change? A.33,500 b.12,500 c.65,500 d.-33,500

10. Your school pays one rate for the first million kilowatts of electricity and a lower rate for any power it uses over one million kilowatts. What is occurring here? A.perfect price discrimination b.second degree price discrimination c.third degree discrimination d.economies of scale

Changes in Sales Mix. Hi-Tech Incorporated produces two different products with the following monthly data (these data are the same as the previous exercise).

Required:

If the sales mix shifts to 50 percent Cell and 50 percent GPS, would the break-even point in units increase or decrease? Explain. (Detailed calculations are not necessary but may be helpful in confirming your answer.)

Go back to the original projected sales mix. If the sales mix shifts to 80 percent Cell and 20 percent GPS, would the break-even point in units increase or decrease? Explain. (Detailed calculations are not necessary but may be helpful in confirming your answer.)

Cafeteria is going to purchase plastic sets of fork, knife, spoon for the people who buy “to go” lunch. For orders less than 100 sets, the cafeteria is charged 30 cents per set. For orders more than 100 but fewer than 500, the cafeteria is charged 20 cents per set. For orders above 500, the cafeteria is charged 15 cents per set. Suppose that ordering cost is $8 per order, holding cost per set per year is 20% of the price of the set. Annual plastic set demand is constant at 900.

C1: x <= 500

C2: X > 500 <= 1,000

C3: X > 1,000

a) Set up the problem: What are the costs and demands (S, H, D)? Also decide whether the quantity discount affects the holding cost per set per time.

b) Compute the EOQ quantity.

c) Find the optimal number of sets to purchase.

Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2013 to create this portfolio and this portfolio is composed of 21 units of instrument A and 35 units of instrument B.

• Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030.
• Instrument B is a Treasury bond with a coupon rate of j₂ = 3.62% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 2023.
• yield rate is 4.04%
• 
  
• 
  

(d) Based on the price in part a and part b, and the duration value in part c, calculate the current duration of Joan’s portfolio. Express your answer in terms of years and round your answer to two decimal places.

Select one:

a. 4.45

b. 4.49

c. 6.56

d. 5.94

The above table contains the maximum prices different types of consumers are willing to pay for three software titles: PowerPoint, Excel and Word. Suppose there are 100 consumers of each type.

a. (6 pts) Which of the following three strategies has the chance of generating the highest revenue for Microsoft?

Support your answers with revenue estimates for each strategy.
Strategy A. Charge a single price of $315 for the bundle of PowerPoint, Excel and Word
Strategy B. Charge $60 for PowerPoint, $80 for Excel and $75 for Word
Strategy C. Charge $125 for PowerPoint, $175 for Excel and $140 for Word

The best strategy among A, B, and C is…

b. (4 pts) Can you suggest a strategy that would produce higher revenue that any of the above three strategies? Support your answer with numbers.

Ericson & Jade Electronics are manufactures of Music instruments made from brass. The purchase manager has estimated that 600Kgs of brass is required every year. The current order size is 50Kg made every month.

It takes $10 to place one order and carrying cost per unit per anum is about $2. The supplier has made the following offer to the purchase manager:

The purchase manager has suggested that the company should purchase full 600Kg of brass to avail the discount.

REQUIRED: Perform the following actions:

         i.            Calculate the EOQ.

       ii.            Analyze and evaluate the argument of purchase manager by showing necessary calculations and decide upon the order size (50Kg, EOQ, 200Kg or 600Kg).

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $1,750 and sells the remote separately for $100, and offers the entire package for $1,900. VP does not sell the installation service separately. VP is aware that other similar vendors charge $150 for the installation service. VP also estimates that it incurs approximately $100 of compensation and other costs for VP staff to provide the installation service. VP typically charges 40% above cost on similar sales. Required: 1. to 3. Calculate the stand-alone selling price of the installation service using each of the following approaches.