Question Details

What price must the division charge in order to break even 



 .	Which of the following is correct?

a.	Generally, debt to total assets ratios do not vary much among different industries although they do vary for firms within a particular industry.
b.	Utilities generally have very high common equity ratios due to their need for vast amounts of equity-supported capital.
c.	The drug industry has a high debt to common equity ratio because their earnings are very stable and thus, can support the large interest costs associated with higher debt levels.
d.	Wide variations in capital structures exist between industries and also between individual firms within industries and are influenced by unique firm factors including managerial attitudes.
e.	Since most stocks sell at or around their book values, using accounting values provides an accurate picture of a firm- capital structure.



 .	The Price Company will produce 55,000 widgets next year.  Variable costs will equal 40 percent of sales, while fixed costs will total $110,000. At what price must each widget be sold for the company to achieve an EBIT of $95,000?

a.	$2.00
b.	$4.45
c.	$5.00
d.	$5.37
e.	$6.21

 .	Texas Products Inc. has a division that makes burlap bags for the citrus industry.  The division has fixed costs of $10,000 per month, and it expects to sell 42,000 bags per month.  If the variable cost per bag is $2.00, What price must the division charge in order to break even ?

a.	$2.24
b.	$2.47
c.	$2.82
d.	$3.15
e.	$2.00

 .	The Altman Company has a debt ratio of 33.33 percent, and it needs to raise $100,000 to expand.  Management feels that an optimal debt ratio would be 16.67 percent.  Sales are currently $750,000, and the total assets turnover is 7.5.  How should the expansion be financed so as to produce the desired debt ratio?

a.	100% equity
b.	100% debt
c.	20 percent debt, 80 percent equity
d.	40 percent debt, 60 percent equity
e.	50 percent debt, 50 percent equity

 .	The Congress Company has identified two methods for producing playing cards.  One method involves using a machine having a fixed cost of $10,000 and variable costs of $1.00 per deck of cards.  The other method would use a less expensive machine (fixed cost = $5,000), but it would require greater variable costs ($1.50 per deck of cards).  If the selling price per deck of cards will be the same under each method, at what level of output will the two methods produce the same net operating income?

a.	 5,000 decks
b.	10,000 decks
c.	15,000 decks
d.	20,000 decks
e.	25,000 decks




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