In its first year of operations, a firm had P50,000 of fixed operating costs. it sold 10,000 units at a P10 unit price and incurred variable costs of P4 per unit. If all prices and costs will be the same in the second year and sales are projected to rise to 25,000 units, what will the degree of operating ieverage (the extent to which fixed costs are used in the firm's operations) be in the second year? A. 1.5 В. 3.0 С. 6.0 D 1.2* Calculate the required rate of return for Apolio, Inc., assuming that investors expect a 5 percent rate of inflation rate in the future. The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent Apollo has a beta of 2.0 percent, and its realized rate of return has averaged 15 percent over the last 5 years. A. 15% B. 16% C. 17% D. 18%*
In its first year of operations, a firm had P50,000 of fixed operating costs. it sold 10,000 units at a P10 unit price and incurred variable costs of P4 per unit. If all prices and costs will be the same in the second year and sales are projected to rise to 25,000 units, what will the degree of operating ieverage (the extent to which fixed costs are used in the firm's operations) be in the second year? A. 1.5 В. 3.0 С. 6.0 D 1.2* Calculate the required rate of return for Apolio, Inc., assuming that investors expect a 5 percent rate of inflation rate in the future. The real risk-free rate is equal to 3 percent and the market risk premium is 5 percent Apollo has a beta of 2.0 percent, and its realized rate of return has averaged 15 percent over the last 5 years. A. 15% B. 16% C. 17% D. 18%*
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
1.5 and 18% is the suggested answer. I just need an explanation why it come up like that. Thank you
Transcribed Image Text:In its first year of operations, a firm had P50,000 of fixed operating costs. it sold
10,000 units at a P10 unit price and incurred variable costs of P4 per unit. If all
prices and costs will be the same in the second year and sales are projected to
rise to 25,000 units, what will the degree of operating leverage (the extent to
which fixed costs are used in the firm's operations) be in the second year?
A. 1.5
В. 3.0
С. 6.0
D. 1.2*
Calculate the required rate of return for Apolio, Inc., assuming that investors
expect a 5 percent rate of inflation rate in the future. The real risk-free rate is
equal to 3 percent and the market risk premium is 5 percent. Apoilo has a beta
of 2.0 percent, and its realized rate of return has averaged 15 percent over the
last 5 years.
A. 15%
B. 16%
C. 17%
D. 18%*
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education