Question Details

Capital Structure and Leverage

26. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm- gain or loss at sales of 12,000 pairs of shoes?
a. -$26,000
b. $84,000
c. $130,000
d. $240,000
e. $300,000



27. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm- gain or loss at sales of 30,000 pairs of shoes?
a. $100,000
b. $210,000
c. $490,000
d. $600,000
e. $900,000



28. The Free Indeed Company manufactures ladies shoes that are sold through discount houses. The shoes are sold for $20 each pair; the fixed costs are $110,000 for up to 30,000 pairs of shoes; variable costs are $13 per pair of shoes. What is the firm- breakeven point in units sold?
a. 30,000 pairs of shoes
b. 15,714 pairs of shoes
c. 8,462 pairs of shoes
d. 5,500 pairs of shoes



29. The HLHL has $20 million in assets, earned $8 million before interest and taxes last year, and has a 40 percent federal-plus-state tax rate. The firm- debt ratio (D/TA) is 30 percent and it pays 12 percent interest on its debt. What is the firm- rate of return on equity (net income/equity)?
a. 31.2%
b. 34.3%
c. 52.0%
d. 72.8%


30. Wiggins Motors has $50 million in assets that are financed entirely with equity. The firm- beta is currently 1.2. The CFO is suggesting that the firm recapitalize and use debt to finance 40% of its assets. Currently, the risk-free rate is 4%, and the market return is estimated to be 10%. The firm- tax rate is 40%. What would be the firm- estimated cost of equity if they recapitalize the firm?
a. 11.2%.
b. 14.08%
c. 16.93%
d. 19.32%



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