Question Details

What is the expected price of the company- stock following the recapitalization 



 .	Hensley Corporation uses breakeven analysis to study the effects of expansion projects it considers.  Currently, the firm- plastic bag business segment has fixed costs of $120,000, while its unit price per carton is $1.20 and its variable unit cost is $0.60.  The firm is considering a new bag machine and an automatic carton folder as modifications to its existing production lines.  With the expansion, fixed costs would rise to $240,000, but variable cost would drop to $0.41 per unit.  One key benefit is that Hensley can lower its wholesale price to its distributors to $1.05 per carton (that is, its selling price), and this would likely more than double its market share, as it will become the lowest cost producer.  What is the change in the breakeven volume with the proposed project?

a.	100,000 units
b.	175,000 units
c.	 75,000 units
d.	200,000 units
e.	      0 units

 .	Martin Corporation currently sells 180,000 units per year at a price of $7.00 per unit; its variable cost is $4.20 per unit; and fixed costs are $400,000.  Martin is considering expanding into two additional states, which would increase its fixed costs to $650,000 and would increase its variable unit cost to an average of $4.48 per unit.  If Martin expands, it expects to sell 270,000 units at $7.00 per unit.  By how much will Martin- breakeven sales dollar level change?

a.	$  183,333
b.	$  456,500
c.	$  805,556
d.	$  910,667
e.	$1,200,000

 
 .	Elephant Books sells paperback books for $7 each.  The variable cost per book is $5.  At current annual sales of 200,000 books, the publisher is just breaking even.  It is estimated that if the authors’ royalties are reduced, the variable cost per book will drop by $1.  Assume authors’ royalties are reduced and sales remain constant; how much more money can the publisher put into advertising (a fixed cost) and still break even?

a.	$600,000
b.	$466,667
c.	$333,333
d.	$200,000
e.	$175,225

 .	Musgrave Corporation has fixed costs of $46,000 and variable costs that are 30 percent of the current sales price of $2.15.  At a price of $2.15, Musgrave sells 40,000 units.  Musgrave can increase sales by 10,000 units by cutting its unit price from $2.15 to $1.95, but variable cost per unit won’t change.  Should it cut its price?

a.	No, EBIT decreases by $6,000.
b.	No, EBIT decreases by $250.
c.	Yes, EBIT increases by $11,500.
d.	Yes, EBIT increases by $8,050.
e.	Yes, EBIT increases by $5,050.

 .	The following information applies to Lott Enterprises:

Operating income (EBIT)	$300,000	Shares outstanding	 120,000
Debt	$100,000	EPS	   $1.45
Interest expense	$ 10,000	Stock price	  $17.40
Tax rate	      40%

The company is considering a recapitalization where it would issue $348,000 worth of new debt and use the proceeds to buy back $348,000 worth of common stock.  The buyback will be undertaken at the pre-recapitalization share price ($17.40).  The recapitalization is not expected to have an effect on operating income or the tax rate.  After the recapitalization, the company- interest expense will be $50,000.

Assume that the recapitalization has no effect on the company- price earnings (P/E) ratio.  What is the expected price of the company- stock following the recapitalization ?

a.	$15.30
b.	$17.75
c.	$18.00
d.	$19.03
e.	$20.48




Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help