Profitability Analysis
Assume Strands Salon, a San Diego hair salon, provides cuts, perms, and hairstyling services. Annual fixed costs are $225,000, and variable costs are 45 percent of sales revenue. Last year's revenues totaled $450,000.

(a) Determine its break-even point in sales dollars.
$Answer

(b) Determine last year's margin of safety in sales dollars.
$Answer

(c) Determine the sales dollar volume required for an annual pretax profit of $200,000.

Round your answer to the nearest dollar.
$Answer

What is the difference between Cash Flow and Profit?

• A. Cash Flow is the cash collected and paid in a company’s core operations. Profit tracks the revenue from customers and the costs of doing business.

• B. Profit tracks the cash collected and paid in a company’s core operations. That’s why it’s called the bottom line. Cash Flow is the change in cash and cash equivalents from one year to the next.

• C. Cash flow is found on the balance sheet while profit is measured on the income statement.

• D. There is no difference, just different names.

You work for a mature company with a long history in the industry and have been given stock options. Which of the following are you most likely wanting to see happen with top line (revenue) and bottom line (net profit) growth rates?

• A. Top line and bottom line holding steady without much variation.

• B. Top line growing faster than bottom line.

• C. Bottom line growing faster than top line.

• D. Both top and bottom line growing at the same rate.

Why is a company's cash burn rate significant for its survival?

A) It represents the speed with which the company is using up cash and how soon it will run out of cash in an adverse economic environment.

B) It is a signal of the ability of a startup company to raise cash from venture capitalists.

C) It indicates how quickly the company will run out of cash before it can pay all its debt obligations.

D) It measures the rate at which a company is investing in new products and how quickly it will generate additional revenue.

1. Calculating Annuity Values. You want to have $60,000 in your savings account 12 years from now, and you’re prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.4 percent interest, what amount must you deposit each year?
2. Calculating Annuity Values. Your company will generate $47,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 7.1 percent, what is the present value of the savings?

Consider a firm facing a downward-sloping demand curve for its product given by: ?(?)=10−?
where 0≤?≤10 denotes the price of the firm’s output. The firm produces its output under a constant marginal cost of ?=1.

a) Write down the firm’s profit-maximization problem assuming the firm’s choice variable is quantity. Find the firm’s profit-maximizing price and quantity.
b) Based on your answers to part (a), find the firm’s equilibrium profits. sketch the firm’s demand, marginal revenue, and marginal cost functions.

Consider the closed-economy market-clearing model. Assume that the marginal propensity to consume is 0.8. The economy's output increases by $10 billion, tax revenue decreases by $6 billion, and the government budget deficit increases by $2 billion.

(a) Calculate the dollar change in government spending. (b) Calculate the dollar change in public saving. (c) Calculate the dollar change in private saving. (d) Calculate the dollar change in national saving. (e) Would the equilibrium real interest rate increase, decrease, or stay the same?