Chapter 1, Problem 11DQ

Shakira Electronics has received a special one-time order for 900 light bulbs at $7 per unit. Shakira currently produces and sells 10,000 units at $8.00 each. This level represents 80% of its capacity. The production costs for these units are $6 per unit, which includes a $4 variable cost and a $2 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $1,200 with a zero-salvage value. Management expects no other changes in costs as a result of the additional production. If Shakira wishes to earn $1,500 on the special order, the size of the order would need to be?

Tom Manufacturing Corp. desires a weighted average cost of capital of 8%. The firm has an after-tax cost of debt of 5% and a cost of equity of 14%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? A. 0.25 B. 0.50  C. 1.50 D. 2.00 E. 3.00

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