### Economic Impact Analysis of OceanGateOceanGate sells external hard drives for $184 each. Its total fixed costs are $27 million, and its variable costs per unit are $120. The corporate tax rate is 40%. If the economy is strong, the firm will sell 8 million drives, but if there is a recession, it will sell only half as many.**a. Percentage Decline in Sales Due to Recession**_Question_: What will be the percentage decline in sales if the economy enters a recession? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)_Answer_: The percentage decline in sales is to be calculated based on the difference in the number of units sold during a strong economy versus a recession.Input Field: ```Percentage decline in sales: [ ] %```**b. Percentage Decline in Profits Due to Recession**_Question_: What will be the percentage decline in profits if the economy enters a recession? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)_Answer_: This requires the calculation considering costs, sales revenue, and the impact of the recession on profit margins.Input Field: ```Percentage decline in profits: [ ] %```**c. Operating Leverage of the Firm**_Question_: Calculate the operating leverage of this firm? (Round your answer to 2 decimal places.)_Answer_: Operating leverage is a measure of how revenue growth translates into growth in operating income. It can be calculated using the degree of operating leverage (DOL) formula.Operating Leverage Calculation Data:```DOL: [ 1.06 ]```### Explanation of Calculation Components- **Fixed Costs**: These are costs that do not vary with the level of production or sales, in this case, $27 million.- **Variable Costs**: Costs that vary directly with the level of production, such as the cost per unit ($120).- **Sales Revenue**: This is calculated by multiplying the number of units sold by the price per unit ($184).- **Profit Analysis**: The tax rate is applied to the profit to understand net income changes.Ensure to fill in the percentage decline in sales and profits fields using proper calculations and rounding guidelines. The operating leverage provided is already rounded to two decimal places for precise financial analysis.

Operating leverage is used to set the selling price of companies products so that all the costs are…

Answered: OceanGate sells external hard drives…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

2. Jim Johnson, the CEO of Acme Imports Company, is focused on his next growth market. After extensive research, he believes that he should import a new line of furniture from Sweden. His research leads him to believe that, next year, he has a 60% probability of generating $2,000,000 of revenue at 20% contribution margin. However, he also recognizes that Swedish furniture may not catch on in his market and that he has a 25% probability of only selling $1,500,000 at the same margin. Ever the optimist, Jim has assessed his probability of selling $2,500,000 (at the same margins) at 15%. Given that he has estimated expenses of $250,000 each year for all the scenarios, what is the EMV of importing Swedish furniture? Group of answer choices a. $140,000 b. $90,000 c. $160,000 d. $150,000 Please solve with excel.
(a) if Polymerco's production is running at 84% capacity, what is the maximum discount in percentage that you can provide? Maximum discount= in % In this case, will you have a negative impact on the profitability of the business? (yes or no) (b) if Polymerco's production is running at 100% capacity, how much percentage of discount can you provide without reducing the profitability? (in %)
Assume that a firm produces an industrial product of a variable cost of $8,500 and has fixed costs of $ 25,000 per week ,currently the firms sells 20 units per week priced at $ 10625 per unit . What is the current profitability of the firm? What is the improvement to profitability if variable costs are reduced by 1 percent holding all else constant? What is the improvement to profitability if fixed costs are reduced by 1 percent ,holding all else constant ?what is the improvement to profitability if units sold are increased by 1 percent on average ,holding all else constant? What is the improvement to profitability if the price is increased by 1 percent holding all else constant? In isolation improving which aspect of the firm will have the largest positive impact on profits?
2. Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWS in each market is given by: QE = 4,000,000 – 100 PE and Qu = 1,000,000 – 20PU where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. a. What quantity of BMWS should the firm sell in each market, and what should the price be in each market? What should the total profit be? b. If BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit? c. If BMW can charge each customer his reservation price, what would be the quantity sold in each market, and the company's profit?
Important: EXCEL Spreadsheet Must be Used for this Problem. Per your request, Table 14-1 is included as an attachment. The Hurricane Lamp Company forecasts that next year’s sales will be $6 million. Fixed operating costs are estimated to be $800,000, and the variable cost ratio (that is, variable costs as a fraction of sales) is estimated to be 0.75. The firm has a $600,000 loan at 10 percent interest. It has 20,000 shares of $3 preferred stock and 60,000 shares of common stock outstanding. Hurricane Lamp is in the 40 percent corporate income tax bracket. a) Forecast Hurricane Lamp’s earnings per share (EPS) for next year. Develop a complete income statement using the revised format illustrated in Table 14.1. Then determine what Hurricane Lamp’s EPS would be if sales were 10 percent above the projected $6 million level. Answer: EPS (Sales = $6 million) = $5.40 b) Calculate Hurricane Lamp’s degree of operating leverage (DOL) at a sales level of $6 million using the following: The…
Ignore income taxes for this problem. A firm currently sells 25 units for $12 each. Its variable cost per unit is $9 and fixed costs total $60. The firm determines it can sell 35 units if it decreases the selling price from $12 to $11 per unit. The firm should Select one: a. Decrease the sales price because it will increase profits by $5. b. Not decrease the sales price because it will decrease profits by $10. c. Not decrease the sales price because it will decrease profits by $5. d. Decrease the sales price because it will increase profits by $10.
Vijay
The Warren Watch Company sells watches for $26, fixed costs are $150,000, and variable costs are $15 per watch. What is the firm's gain or loss at sales of 8,000 watches? Loss, if any, should be indicated by a minus sign. Round your answer to the nearest cent.$ What is the firm's gain or loss at sales of 16,000 watches? Loss, if any, should be indicated by a minus sign. Round your answer to the nearest cent.$ What is the break-even point (unit sales)? Round your answer to the nearest whole number.units What would happen to the break-even point if the selling price was raised to $31? What would happen to the break-even point if the selling price was raised to $31 but variable costs rose to $21 a unit? Round your answer to the nearest whole number.
The current situation of XZ company is as follows: Variable costs are 84% of sales and fixed costs are $40 000. a) A suggestion is made to improve the profit by increasing the contribution margin. If the contribution margin can be improved by 6% of sales by increasing fixed costs by $10 000, will the break even point be lower? b) If sales are currently $300 000, will the profit be better, assuming no increase in sales?
A4
Heat Inc. sells computer hard drives, and the market is competitive (i.e., sales price will not be affected by Heat's sales volume). Its EBIT for 2022 was $69,000 when the sales quantity was 500 units. In 2023, its EBIT was $119,000 when the sales quantity was 700 units. a) Calculate its contribution margin per unit and total fixed costs. b) Calculate the degree of operating leverage for 2022 and 2023. c) If Heat changes its production technology by doubling its fixed costs and the breakeven (indifferent) quantity is 1, 120 units, find the new contribution margin. Heat has $40,000 debt that pays annual interest of 15% and 2,000 outstanding common shares that are trading at $25. Its tax rate is 30% . d) Calculate EPS for 2022 and 2023. e) Calculate the degree of financial leverage for 2022 and 2023. f) Calculate the degree of total leverage for 2022 and 2023. g) Heat considers borrowing $20,000 new debts (that also pay 15% interest) to buy back common shares (at current price of $25 per…
Problem 3. Regent Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs rugs per year at an average price of each. Bad debt expenses are of sales, the average collection period is days, and the variable cost per unit is . Regent expects that if it does relax its credit standards, the average collection period will increase to days and that bad debts will increase to of sales. Sales will increase by repairs per year. If the firm has a required rate of return on equal-risk investments of , what recommendation would you give the firm? Use your analysis to justify your answer (use a 365-day year)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS