TB Chapter 08

8.20 equals $ 86,700. The contribution margin per unit at a retail price of Cr. 6.85 equal 1.95. The required volume will be the result of dividing the profit impact on the contribution margin per unit.

On the other hand behavioural finance defines the market dynamics and movement in terms of psychology of the participants in the trading process. Behavioural finance proposes that the amount of information available in the market regarding the factors that determine the output or profitability of a particular investment actually serve to determine the movement and output of the market itself (Fama, E.F., 1998).

In 1619, Virginia was an isolated British settlement on the Chesapeake Bay. It was sparsely populated by men trying to make the colony profitable for England. But the colonists were devastated by hunger, disease, and raids by Native Americans. So when the White Lion, a badly damaged Dutch slave ship arrived, carrying 20 kidnapped black Africans, the colonists bartered food and services for the human cargo. The Africans started working for the colonists. They would work 7 years of hard labor in exchange for land and freedom. But when colonies started to prosper, the colonists were reluctant to lose their labor. Since the Africans did not have citizenship, they were not subject to English common law. They were workers with no rights.

The _____________ is a market for converting the currency of one country into that of another.

The Eskimo’s predict the sudden sea squalls but studying the habits of seals. The elder Eskimo was explaining seal patterns for when a seal comes up for breathe under the water. If the seal comes out of the water to breath with its back arched up right to sky and it’s head fully out of the water exposed then the weather will be a normal. But if the seal surfaces faced down with halfway submerged under water still then this was a preview for ominous weather to come that day.

13. Sunglass Hut purchases a pair of Tiffany sunglasses from a wholesaler for $180 and sells it for $300. If the wholesaler increases its price by 20%, to the nearest dollar, what should Sunglass Hut charge in order to maintain the same percent margin?

Contribution Margin = (Unit selling price – unit variable cost) / unit selling price = ($9.00 – $2.60) / $9.00 = 0.7111 = 71.111%

If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.

6. A product’s margin is determined by subtracting its manufacturing costs (labor and material) from its price. Logically, higher prices and lower labor and material costs result in higher margins. Keeping in mind the Customer Buying Criteria, how would you increase margins for a Low End product? How would you increase margins for a High End product? Hint: The criteria can be found in the Capstone Courier Market Segment Analyses.

9. Suppose that Whirlpool finds a way to reduce the costs of the project by 5%. Please change the cost factor in cell G31 to 95%. What is the value of the option now?

If Jones-Blair cut prices by 20%, they would need to maintain the profit of $1.14M to keep the status quo. The contribution margin right now is 35%, if the prices were cut by 20%, the contribution margin decreases to 15%. 35% is converted into .35 and 20% is converted into .20. The required sales in order to maintain the status quo if prices were reduced by 20% is 28M. This is found by finding the gross margin which is current sales multiplied by the contribution margin, 12M * .35 = 4.2M. We would then need to maintain the same gross margin to find out the required sales, (12M + x) * .15 = 4.2M. Computation equates x to be $16M. The $16M that is required to maintain the same gross margin, added to the $12M of the current sales equals $28M. In order to maintain the current profit, Jones-Blair would have to increase sales by $16M, more than double the current amount. If chosen, this alternative would be a very poor choice.

Analyze the risk associated with exchange-traded derivatives, such as futures and options, and what brokers might do to minimize the risk to investors.

2. i) According to world – ostrich organization (http://www.world-ostrich.org/demand.htm), the current demand for ostrich meat is way far more than supply. Therefore, there will be a constantly increase in the price of ostrich meat. Investors are reluctant to take short positions of ostrich meat futures; however, there would be a lot of people willing to take long positions. Thus, the long positions will be in far excess of short

They will only play the stock market when they need money, and even then they don’t put much effort into it. They just find a company’s that they think will rise in value. They by it and then sell it when it becomes worth more. This for them is only something to make money and it’s only something they do once and awhile. This makes them not active in what they are doing, so they fail Wolf’s first criteria.

2. The process of profit margin. Given the profit margin range of 9.2% to 10.1% between the following ten years from 1989 to 1998, it is acceptable to assume that the margin rate was uniformly continuous with a 0.1% increase from year to year.