Suppose that the profit for firms that are already present in an industry is $200, the cost of entry into the market is $800, and all firms use the same discount rate of 8%. If each new firm reduces profit by $68, how many firms will enter this market?
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- Suppose the firm makes the change but its competitors react by making similar changes to their own credit terms, with the net result being that gross sales remain at the current 1,000,000 level. What would be the impact on the firms after-tax profitability?Marchete Company produces a single product. They have recently received the results of a market survey that indicates that they can increase the retail price of their product by 8% without losing customers or market share. All other costs will remain unchanged. Their most recent CVP analysis is shown. If they enact the 8% price increase, what will be their new break-even point in units and dollars?Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts. What is the average amount of accounts payable net of discounts? (Assume the $3.65 million of purchases is net of discounts—that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.) Is there a cost of the trade credit the firm uses? If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit? What would be the firm’s cost of not taking discounts if it could stretch its payments to 40 days?
- A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm is earning $5.50 on every $50 invested by its founders. What is its percentage rate of return? Is the firm earning an economic profit? If so, how large? Will this industry see entry or exit? What will be the rate of return earned by firms in this industry once the industry reaches long-run equilibrium?Sunrise Company sells 3, 650 frying pans per year. The owner has invested $80, 000 in the business and desires an 8% return on his investment (ROI = Net Income Investments). Product Costs VC $4.5 per pan FC $78,000 per year Selling and Administrative Costs VC $3.00 per pan FC $15,000 per year If Sunrise uses the income statement bottom-up forecasting to estimate revenue and absorption cost-based pricing, what is its selling price and markup percentage? A. 5.32% and $34.73 B. 34.25% and $34.73 C. 27.48% and $32.98 D. 363% and $34.73Rose Trading had RM210,000 of net profit in year 2021 when the selling price per unit was RM150, the variable costs per unit were RM90, and the fixed costs were RM570,000. Management expects per unit data and total fixed costs to remain the same in year 2022. The manager of Rose Trading is under pressure from investors to increase net profit by RM52,000 in year 2022.Required:(iii) Assume that Rose Trading sells the same number of units in year 2022 as it did in year 2021. What would the selling price have to be to reach the shareholders’ desired profit level?(iv) Assuming actual sales in year 2022 are 16,000 units with the new selling price as computed in (c), compute the margin of safety in (i) units and (ii) as a ratio. Briefly explain your findings. (Tips: Interpret about margin of safety)
- The Weaver Watch Company sells watches for $25, the fixed costs are $140,000, and variable costs are $15 per watch.a. What is the firm’s gain or loss at sales of 8,000 watches? at 18,000 watches? b. What is the breakeven point? Illustrate by means of a chart.c. What would happen to the breakeven point if the selling price was raised to $31? What is the significance of this analysis?Udar limited is considering a change in its credit terms from 2/10 net 30 to 3/10 net 45, change is expected to:a) increase total sales from 50 million to 60 million.b) decrease the proportion of customers taking discount from 70% to 60%.c) increase average collection period from 20 days to 24 days.The gross profit margin for the firm is 15% and cost of capital is 12%.The rate is 40%.Calculate the expected change in residual income.Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2?
- A firm is considering several policy changes to increase sales. It will increase inventory by $10,000 it will offer more liberal sales terms but will result in average receivables increasing by $65,000. These actions are expected to increase sales by $800,000 per year, and cost of goods will remain at 80% of sales. Because of the firm’s increased purchase of its won production needs, average payable increases by $35,000.What factors should they consider when making these decisions? What effects would they have on the firm’s cash cycle? Please select three financial ratios they should consider and whyThe sales director of ABC Corp suggest the following credit terms. He estimated the following:Sales will increase by at least 20%AR turnover will be reduced to 8 times from present turnover of 10 times.Bad debts will increase to 1.5%. Current bad debts are 1%.Current sales is P 900,000Variable cost ratio is 55%.Desired rate of return is 20%Fixed expenses is P 150,000What is the net advantage of changing the credit terms?Hebner Housing Corporation has forecast the following numbers for this upcoming year: Sales = $1,000,000. Cost of goods sold = 600,000. Interest expense = 100,000. Net income = 180,000.The company is in the 40 percent tax bracket. Its cost of goods sold always represents 60 percent of its sales. That is, if the company’s sales were to increase to $1.5 million, its cost of goods sold would increase to $900,000. The company’s CEO is unhappy with the forecast and wants the firm to achieve a net income equal to $240,000. In order to achieve this level of net income, what level of sales will the company have to achieve? Assume that Hebner’s interest expense remains constant.
