Price Corporation is considering selling to a group of new customers and creating new annual sales of $240,000. 3% will be uncollectible. The collection cost on all accounts is 6% of new sales, the cost of producing and selling is 83% of sales, and the firm is in the 22% tax bracket. What is the profit on new sales?

Price Corporation is considering selling to a group of new customers and creating new annual sales of $240,000. 3% will be uncollectible. The collection cost on all accounts is 6% of new sales, the cost of producing and selling is 83% of sales, and the firm is in the 22% tax bracket. What is the profit on new sales?

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

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Steber Packaging Inc. expects sales next year of $40 million. Of this total, 45 percent is expected to be for cash and the balance will be on credit, payable in 30 days. Operating expenses are expected to total $17 million. Accelerated depreciation is expected to total $12 million, although the company will only report $8 million of depreciation on its public financial reports. The marginal tax rate for Steber is 34 percent. Current assets now total $26 million and current liabilities total $14 million. Current assets are expected to increase to $29 million over the coming year. Current liabilities are expected to increase to $20 million. Compute the projected after-tax operating cash flow for Steber during the coming year. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.50 million per year, growing at a rate of 2.5% per year. Goodyear has an equity cost of capital of 8.5%, a debt cost of capital of 7.0%, a marginal corporate tax rate of 35%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
LPM Corporation sells its product for $10 each. Fixed operating costs equal $100,000, and variable operating costs are 75 percent of the selling price. The firm pays $37,500 in interest, and its marginal tax rate is 35 percent. (a) What are LPM’s operating breakeven point and financial breakeven point? (b) If LPM expects to sell 65,000 units, what are its degree of operating leverage (DOL), degree of financial leverage (DFL), and degree of total leverage (DTL)? The firm has no preferred stock
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.41 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.4%, a debt cost of capital of 7.2%, a marginal corporate tax rate of 32%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $enter your response here million after tax. (Round to one decimal place.)
The XYZ Corporation expects to have sales of $15 million this year. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to amount to $1 million. XYZ is using $5 million debt at 10%. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. XYZ's federalolus - state tax rate is 30%. What is XYZ's expected cash flow from operations? (Assume no other changes occurred.)
You are considering adding a new product to one of your firm’s existing product lines which will generate an additional $200,000 in sales per year and will have a margin of 50% (same as the existing group margin). This will entail an increase in Net Working Capital of $10,000 and an investment in property, plant, and equipment of $50,000 per year. Assuming the company pays no tax and any depreciation in that year is negligible, the annual change in Unlevered Free Cash Flows resulting from the addition of the product is: a $40,000 b $50,000 c $90,000 d $100,000 e $10,000
Maverick Technologies has sales of $3,000,000. The company’s fixed operating costs total $500,000 and its variable costs equal 60% of sales, so the company’s current operating income is $700,000. The company’s interest expense is $492,284. What is the company’s degree of financial leverage (DFL)?
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.49 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.6%, a debt cost of capital of 6.7%, a marginal corporate tax rate of 34%, and a debt-equity ratio of 2.4. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $ million after tax. (Round to one decimal place.)
Last year, Cayman Corporation had sales of $6 million, total variable costs of $2 million, and total fixed costs of $1 million. In addition, they paid $480,000 in interest to bondholders. Cayman has a 21% marginal tax rate. If Cayman's sales increase 6%, what should be the increase in operating income?
The Berndt Corporation expects to have sales of $15 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Brendt's federal-plus-state tax rate is 40%. Berndt has no debt. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X THAAL Open spreadsheet a. Set up an income statement. What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar. $ b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What is Berndt's expected net cash flow? Round your answer to the nearest dollar. $ c. Now suppose that Congress changed the…

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