Fidel's Cigars has a variable cost of €17.60 per cigar and its maximum production level is 500,000 units. If the market will only yield a sales price of €20.00 per cigar, then by what amount must Fidel's fixed cost decrease by to break even if its current fixed cost is €2,000,000?
€800,000
€1,200,000
€2,000,000
none of the above
You own the right to ship all Elvis CDs to the Far East. If you were to sell as many CDs as possible you know that you could generate €8,000,000 of cash flow per year for 5 years. You find a CD exporter that is willing to pay you €40,000,000 today for your rights. What is the option to postpone exporting Elvis CDs worth today? Assume that the cost of capital for such a project is 18%.
€25,017,368
€14,982,632
€0
none of the above
The key point concerning sensitivity analysis is that it attempts to:
change one variable while holding all others constant in order to ascertain the effect of that one variable change.
change many variables in order to ascertain the effect of that multi-variable change.
quantify the effect of many different scenario changes at a time.
none of the above.
Barry's Shoe Store increased its sales last year from €50,000 to €60,000. Meanwhile its EBIT changed from €10,000 to €13,000. What was Barry's operating leverage?
0.20
0.30
0.67
1.50
You own a firm that has fixed costs of €100,000 per year. If you sell your only product for €35 per unit while variable costs are €15 per unit, then how many units must you sell in order to break even?
20,000
15,000
10,000
5,000
If you own a large amount of natural gold reserves then you may choose to mine the gold today or wait until a later date to mine the gold when prices are higher. You therefore hold a:
decision tree.
real option.
call option.
perpetual option.
ZBM is financed with €5 million of preference shares, €70 million of ordinary shares, and €25 million of debt. The yield-to-maturity on their debt is 10% and the expected return on the preference and ordinary shares is 14% and 20%, respectively. If the firm is in the 34% marginal tax bracket, what is the firm's weighted average cost of capital?
16.35%
15.05%
14.85%
14.25%
An increase in the sales price will affect the break-even unit sales level by:
increasing the break-even sales level.
decreasing the break-even sales level.
its effect on the variable cost.
its negative effect on the contribution margin.
At a basic level, operating leverage is really a function of:
how much debt the firm utilizes in its capital structure.
the degree to which the firm utilizes fixed costs versus variable costs.
the degree to which the firm is research and development based.
none of the above.
Carswell Cogs has a fixed cost of €1,200,000 and its maximum production level is 500,000 units. If the market will only yield a sales price of €20.00 per cog, then what is the maximum variable cost that Carswell can sustain per unit and remain in business?