Stock Price Problems In Tutorial Library

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TITLE: Stock Price Problems

CLASS / COURSE: Finance

QUESTION DESCRIPTION:

1. Amish Enterprises makes wooden play sets. The company pays annual rent of $350,000 per year and pays administrative salaries totaling $120,000 per year. Each play set requires $300 of wood, ten hours of labor at $50 per hour, and variable overhead costs of $50. Fixed advertising expenses equal $40,000 per year. Each play set sells for $2,350. What is Amish Enterprises' break-even output level?

2. Moline Manufacturing Corporation reported the following items: Sales = $5,000,000; Variable Costs of Production = $2,000,000; Variable Selling and Administrative Expenses = $250,000; Fixed Costs = $1,650,000; EBIT = $1,100,000; and the Marginal Tax Rate = 40%. Moline's break-even point in sales dollars is ________.

3. Bob's Baked Goods Company reported the following income statement for 2007:
Sales $1,800,000
Variable Costs 600,000
Fixed Operating Costs 500,000
EBIT 700,000
Interest Expense 100,000
EBT 600,000
Taxes (40%) 240,000
Net Income $360,000
Earnings Per Share $3.60

If Bob’s sales next year increase by 30%, what will Bob’s earnings per share be?

4. Bob's Baked Goods Company reported the following income statement for 2007:
Sales $1,800,000
Variable Costs 600,000
Fixed Operating Costs 500,000
EBIT 700,000
Interest Expense 100,000
EBT 600,000
Taxes (40%) 240,000
Net Income $360,000
Earnings Per Share $3.60

If Bob’s sales next year increase by 30%, Bob’s EBIT will increase:

5. LAW, Inc. settled a large lawsuit that caused earnings to be negative for the quarter. This quarterly loss was the first in 22 years. In addition, the company has a record of 48 consecutive quarters of dividend payments. Which of the following is correct?
a. The company cannot pay dividends this quarter since the company had no earnings.
b. The company can use cash generated through prior retention of earnings, or borrowed funds to pay the dividend.
c. The company can omit the dividend; shareholders are always understanding about the riskiness of business.
d. The clientele effect says that investor choice of investment vehicle is independent of dividend policy and therefore the payment/omission of the dividend is immaterial.

 

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SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Accounting
4. Corporate Finance
5. Investment and Portfolio Management
6. Business Economics

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