Schweser satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm's fixed cost, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will: 1. reduce the variable costs per unit by $10,000 and 2. increase output by 20 units, but 3. the sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carryforwards that renders its tax rate 0, its cost of equity is 16%, and it uses no debt. what is the incremental profit? What is the project’s expected return next year? should the firm make the investment? Would the firm break-even point increase or decrease if it mane the change Would the new situation expose the firm to more or less business risk than the old one?
Schweser satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm's fixed cost, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will: 1. reduce the variable costs per unit by $10,000 and 2. increase output by 20 units, but 3. the sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carryforwards that renders its tax rate 0, its cost of equity is 16%, and it uses no debt. what is the incremental profit? What is the project’s expected return next year? should the firm make the investment? Would the firm break-even point increase or decrease if it mane the change Would the new situation expose the firm to more or less business risk than the old one?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter16: Capital Structure Decisions
Section: Chapter Questions
Problem 7P
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Schweser satellites Inc. produces satellite earth stations that sell for $100,000 each. The firm's fixed cost, F, are $2 million, 50 earth stations are produced and sold each year, profits total $500,000, and the firm's assets (all equity financed) are $5 million. The firm estimates that it can change its production process, adding $4 million to investment and $500,000 to fixed operating costs. This change will: 1. reduce the variable costs per unit by $10,000 and 2. increase output by 20 units, but 3. the sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carryforwards that renders its tax rate 0, its
- what is the incremental profit? What is the project’s expected return next year? should the firm make the investment?
- Would the firm break-even point increase or decrease if it mane the change
- Would the new situation expose the firm to more or less business risk than the old one?
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